1. Markets Reel from Tariffs and Volatility
Markets endured a rough ride as the announcement of sweeping new tariffs triggered a sharp sell-off. The S&P 500 plunged 10.5% in two days—the fifth-worst two-day decline since 1950—pushing the index down 13.7% year-to-date. The sell-off reflects investor concern about the economic impact of aggressive trade policy, with potential implications for global supply chains and corporate profits.
Key Takeaway: Historical data suggests that markets have rebounded strongly after major two-day drops, making the current correction potentially attractive for long-term investors.
2. The Labor Market Holds Steady Amid Policy Shifts
The March jobs report surprised to the upside with 228,000 new nonfarm payrolls added, beating expectations. However, revisions to prior months softened the impact, bringing the net gain closer to forecasts. Notably, foreign-born workers remain a major driver of labor force growth, especially in sectors like construction and personal services. While border crossings have slowed, deportation levels remain steady, suggesting that immigration policy changes are still in the early stages.
Key Takeaway: Strong job growth and immigrant labor are bolstering economic momentum, but policy outcomes could shift this dynamic in the months ahead.
3. Volatility Spikes, but History Offers Hope
The VIX surged 109% last week—its third-largest weekly increase ever—reaching 45.3. Historically, spikes of this magnitude have been followed by substantial market gains over the subsequent 3 to 5 years. Although elevated volatility signals uncertainty, it can also present long-term buying opportunities.
Key Takeaway: Volatility tends to precede outsized returns; maintaining a disciplined investment strategy is key.
4. Oil Tumbles and Recession Fears Resurface
Crude oil dropped 13.6% over just two days, raising concerns about weakening global demand. While sharp oil declines often accompany recessions, the current move could also reflect short-term market dynamics. The Atlanta Fed’s GDPNow model estimates a -2.8% contraction for Q1, fueling debate about a potential slowdown.
Key Takeaway: Oil’s decline is a red flag, but a recession is not yet confirmed—watch Q1 data closely.
5. Flight to Safety Continues
Investors poured into long-duration Treasuries, pushing yields below 4% and boosting returns for ETFs like $ZROZ and $TLT. Meanwhile, credit-sensitive assets underperformed, with high-yield spreads widening but still below levels typically associated with economic distress.
Key Takeaway: Defensive positioning is in vogue, but credit markets are not yet flashing recession alarms.
6. Fed Rate Cut Expectations Surge
Markets now expect four Fed rate cuts in 2025, up from just one projected three months ago. Supporting this shift, Truflation’s real-time gauge shows inflation has fallen to 1.2%—its lowest since late 2020. If sustained, this could give the Fed the flexibility to ease policy and support asset prices.
Key Takeaway: With inflation dropping, the Fed has room to maneuver—potentially providing a cushion for markets.
Next week, investor focus will turn to Q1 bank earnings and the latest CPI reading to assess the Fed’s next move.
