Weekly Economic Update: April 22, 2025

Presented by Nicholas Wealth Management

Powell stirs the pot

Last week was a short one for traders as markets were closed for Good Friday. Markets seemed to have settled into a range as we awaited more news on tariffs, but the week didn’t bring any more “world series of tariffs” type of volatility. The one-upmanship between the U.S. and China stopped, and we had a 90-day pause on all tariffs except a 10% rate across the board. Plus China didn’t get any relief. The administration also said about 75 countries were lined up to negotiate and sign new trading deals over the next 90 days.¹

Companies began releasing first-quarter earnings, and, as usual, haven’t been as bad as projected so far. (The exception was UnitedHealth, which dragged the Dow down on Thursday.)² The budget bill has also advanced in Congress, and markets were waiting to learn the details before the House and Senate left for Easter break.

In all, there wasn’t much going on, and we were set to have a quiet week for the first time in a while. And then Federal Reserve Chair Jerome Powell decided to speak for the second time this month and disrupt the already fragile markets once again.³

Earlier in April, Powell felt compelled to remind us that the outlook for the U.S. economy is still highly uncertain, despite a strong a jobs report. His comments on April 4 basically translated to “don’t look for the Fed to step in with rate cuts until we see something concrete.”⁴ Markets took that as rates weren’t going to come down as much as they hoped because the Fed needs to see what tariffs will do to inflation and the economy.

Powell basically said the same thing again last week without any new data to support his claim. In fact, we actually had better-than-expected news on inflation between the two speeches. But markets once again turned sour, and we lost more ground.

Why did the Fed Chair — who is constantly telling us we need to see the data to support any decision the Fed makes — decide to speak up again in less than two weeks to remind us he thinks tariffs will mess up the economy? If he thinks tariffs will tank the economy, maybe he should do something like what the European Central Bank just did, which is lower rates because they want to cushion Europe’s flagging economy from a trade war.⁵ That move soothed European markets, while Powell’s comments did not.

The Federal Reserve has a key responsibility in maintaining economic stability, which makes it concerning when action or communication seems unclear or delayed. Chair Powell’s leadership has raised questions about whether the institution needs stronger vision and decisiveness. Meanwhile, President Trump has increased his criticism, stating he has the authority to remove Powell from his position.⁶ Going forward, the Federal Reserve might consider simplifying communications and focusing on providing clear, relevant and impactful information to support market stability and confidence.

It’s always darkest before the day

It’s easy to fall into a doom-and-gloom cycle. The markets drop, the news is negative and we question ourselves. Then we get stressed and begin to shut down, succumbing to tunnel vision and forgetting nuances. We get so caught up in the moment that we forget to zoom out and take a broader view, which leads to bad decisions.

So it is with the market. All we hear is negativity and fear — and it makes us crabby. The good news is you do not have to give in to it.

If the market is bothering you to the point of you not being yourself or letting stress take over, you can always step back. If we asked people three years ago if they would be happy to lock in the S&P 500 at 5,300 points when it was 4,300, we’d guess a large majority would have said “sign me up.” But we saw 6,150 on the S&P 500 and said, “keep going,” convincing ourselves volatility had disappeared.

We’re not saying you should not be rewarded for taking risk or that you should not take risk. What we are saying is that taking risk comes with the possibility of loss. If you’re uncomfortable, take your gains and ask your advisor to put you into an allocation that won’t stress you out.

If you’re more inclined to be an argonaut (someone who sets off on a daring quest), let’s talk about where we go from here. There have been nine corrections since 2010. One year following the correction, the average return of the S&P 500 was 18%, with only 2022 resulting in a decline. The last time we had a correction (October 2022), the next 12 months gave us 41%.⁷ And from 1997 to 2020, the average 3-year return was 58% after a correction.⁸

You can cut, dice and splice the time periods, but the point is that markets win 75% of the time. If you think stocks will be higher three years from now, take a seat, grab an oar and start rowing. Better days are ahead!

Coming this week

• It’s a pretty mundane week for data, and Congress is still out. But at least we will have a full trading week.
• We’ll see more Fed speakers in the next few days. Hopefully it works out better than it did for Powell last week!
• U.S. leading indicators will be released on Monday, followed by new home sales on Wednesday. New home sales will likely be soft after last week’s housing starts for March contracted by the most in a year. The reasons for the decline were high home prices and relatively high mortgage rates, plus builders must now contend with the uncertainty of new tariffs and how they’ll impact building costs.
• Wednesday will also include the Fed Beige Book and MBA mortgage applications. On Thursday, we’ll see weekly unemployment and durable goods.
• We’ll finish the week with another reading of consumer sentiment. Unsurprisingly, this number will be dismal, given all the negative news and fearmongering around the tariffs.

Turbulence carries over into new week

After a brief pause for the Easter weekend, the market roller coaster resumed on Monday morning and dropped significantly by midday. Ongoing concerns about tariffs and a potential recession will keep the up-and-down cycle going until we start seeing new trade deals, which haven’t started yet. There’s also continued fallout from Powell’s comments on inflation, plus the 10-year Treasury yield is back up over 4.3%. The death of Pope Francis may also increase short-term volatility due to news-related trading, although it shouldn’t be a factor in a sustained market downturn.

Sources:

¹ Shannon Pettypiece. NBC News. April 18, 2025. “Trump faces imposing timeline to broker 75 trade deals in less than 90 days.” https://www.nbcnews.com/politics/trump-administration/trump-faces-imposing-timeline-broker-75-trade-deals-less-90-days-rcna200793. Accessed April 19, 2025.

² Derek Saul. Forbes. April 17, 2025. “Dow Slides 500 Points As UnitedHealth Stock Heads to Worst Day in 27 Years.” https://www.forbes.com/sites/dereksaul/2025/04/17/dow-slides-500-points-as-unitedhealth-stock-heads-to-worst-day-in-27-years/. Accessed April 19, 2025.

³ Howard Schneider and Ann Saphir. Reuters. April 16, 2025. “Powell says Fed remains in wait-and-see mode; markets processing policy shifts.” https://www.reuters.com/markets/us/fed-chair-powell-deliver-fresh-economic-view-tariffs-inject-uncertainty-2025-04-16/. Accessed April 19, 2025.

⁴ Federal Reserve. April 4, 2025. “Economic Outlook.” https://www.federalreserve.gov/newsevents/speech/powell20250404a.htm. Accessed April 19, 2025.

⁵ Anna Cooban. CNN. April 17, 2025. “European Central Bank cuts interest rates as tariffs threaten the economy.” https://www.cnn.com/2025/04/17/economy/ecb-cuts-interest-rates-tariffs-intl/index.html. Accessed April 19, 2025.

⁶ Bryan Mena. CNN. April 17, 2025. “Trump blasts Fed Chair Powell, saying his ‘termination cannot come fast enough.’” https://www.cnn.com/2025/04/17/economy/trump-fed-chair-powell-termination/index.html. Accessed April 19, 2025.

⁷ Felix Richter. Statista. March 17, 2025. “Corrections Are Often Followed by Strong Rebounds.” https://www.statista.com/chart/34137/12-month-return-of-the-sp-500-after-corrections/. Accessed April 19, 2025.

⁸ GFA Investments. April 2020. “Market Corrections of 10% or More: Good Time to Buy?” https://gfainvestments.com/wp-content/uploads/2020/04/SP-500-Market-Corrections-A04012020-1.pdf. Accessed April 19, 2025.