April 2025 Review and Outlook

Executive summary:

• Stocks punished after April 2 Liberation Day, but recovering
• Growth outperformed Value, a reversal of the YTD moves
• GDP Contracted in Q1 – mostly due to frontloaded imports ahead of tariffs
• Earnings growth remains strong, but outlook is cloudy

Index performance for April:

U.S. equities ended the month lower, but well off the worst levels seen in the days following the April 2 “Liberation Day” tariff announcement. Breadth was also negative with the equal-weight S&P 500 underperforming by approximately 160 basis points (bps) compared to the official index.

On April 2, President Trump announced his long-promised “reciprocal” tariffs, including a 10% baseline tax on imports from all countries, a 34% tariff on Chinese goods, a 25% tariff on all car imports, and a 20% tariff on EU goods. The S&P 500 experienced its worst two-day performance since March 2020 in response, as strategists flagged growth concerns. In retaliation, China imposed 34% tariffs on U.S. goods, and the EU announced its own countermeasures. On April 9, the president announced a 90-day pause on higher-level reciprocal tariffs to allow for negotiations, leading to the S&P posting its best day since October 2008. However, China was excluded from the pause, with President Trump instead raising tariffs on China to 145%, prompting China on April 11 to raise its tariffs on U.S. goods to 125%. U.S.-China trade tensions remained high throughout the month, although some positive signs emerged after Treasury Secretary Bessent anticipated de-escalation with China. President Trump also indicated that China tariffs would be substantially reduced but not eliminated. Relief on auto tariffs was provided in response to industry calls. Additionally, the White House suggested that trade agreements with Japan and India were near, while talks with the EU were more challenging.

Strategists revised their S&P 500 year-end price targets downward due to tariff headwinds and increased the odds of a recession this year. Morgan Stanley projected a rangebound S&P 500 with limited upside until a deal with China is reached. Goldman Sachs raised the odds of a U.S. recession to 45% (previously 35%) but later noted that it does not foresee a recession this year following Trump’s 90-day pause. There were also discussions about potential supply chain disruptions as the full impact of the trade war began to emerge.

On an economic front, the initial reading of Q1 GDP showed an unexpected decline, marking the lowest level since Q1 2022. It should be noted, though, the drawdown was driven by imports being frontloaded ahead of tariffs as well as a drop in government spending. Consumer sentiment dropped to its lowest point since July 2022, while consumer confidence fell to its lowest level since Spring 2020. The March jobs report exceeded expectations, although the unemployment rate ticked slightly higher. Both March CPI and PPI were cooler than anticipated, though the data was outdated due to subsequent tariff developments. March core PCE remained unchanged month-over-month and was cooler than expected. Headline March retail sales saw the biggest gain since January 2022, driven by strong auto sales potentially pulled forward ahead of tariffs. The NY Fed’s April Empire State Manufacturing Index future business conditions component fell to its second lowest reading in the survey’s more than 20-year history.

Sector performance total return for April:

Earnings commentary:

According to FactSet, with 50% of S&P 500 companies reporting earnings for Q1’25, the results have been solid, but the outlook remains uncertain. So far this reporting cycle, just over 76% of companies are reporting EPS above estimates, which is slightly below the 5-year average of 77%, but above the 10-year average of 75%. The aggregate earnings surprise is +9.3% currently, which is above both the 5- and 10-year averages of 8.8% and 6.8%, respectively. Positive EPS surprises are being led by the Communications sector, which has printed +24.8% above estimates, followed by Health Care (8.4%) and Materials (8.2%0). Only Real Estate has had a negative EPS surprise, which came in 3.2% below estimates.

On earnings front, more sectors are in the red, but the overall earnings growth is well above recent trends. If earnings growth remains near these levels, it will be the second straight quarter of double-digit earnings growth and seventh consecutive quarter of year-over-year earnings growth. There are currently six sectors reporting EPS growth, led by Health Care (61.1), Communications (27.5%), and Technology (16.9%), while Industrials (-29.2%), Energy (-27%), and Consumer Discretionary (-14.4%) have been the laggards.

Sales surprises and growth are also trending well, with seven sectors reporting positive sales growth, with only Materials (-2.8%) and Energy (-1.9%) reporting >1.5% contractions. The average sales growth figure for the quarter currently sits at 3.8%, which would mark the 18^th consecutive quarter of revenue growth for S&P 500 companies. Sales surprises for the first quarter are being led by Energy companies, with an average beat of 2.6%, and only Utilities (-1.0%) and Consumer Discretionary (-0.9%) are reporting misses. The overall upside sales surprise being reported to date is 0.8%.

Earning Call Mentions:

Tariffs:

Economic Slowdown:

Sales and earnings results by S&P sector:

2-day price reaction following earnings releases:

Fed rate cut odds:

Gold made new all time highs in April:

Bitcoin:

Dollar weakness accelerated after April 2, with the dollar index hitting 20-year lows:

DXY:

GDP fell in Q1, pulled down by a wave of imports ahead of expected tariffs:

Looking ahead:

May will bring the conclusion of Q1’25 earnings season, as well as further economic data, including jobs, inflation and GDP. Historically, May has been one of the better months for stocks with an average return of just under 1.0% over the last 10 years, but as we know historical performance is no guarantee of future returns. While the Federal Reserve will meet early in the month, there is very little expectation for them to take any action, but the press conference following the meeting always brings some sort of market moving headlines. CPI data will be released in the week following the meeting, which could give the market a good signal if the Fed is ready to cut rates at their June meeting.

Most important of all, however, will be developments around announced tariffs. The market is priced for quick resolutions with many countries. Prolonged negotiations could further undermine business and consumer sentiment, putting corporate earnings and stock prices at greater risk.

Economic Calendar:

The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.