The month of April has certainly been a roller coaster of volatility. U.S. markets moved back into correction territory after briefly entering bear market levels.
Let’s take a deep dive into what happened and attempt to understand what might come next.
On April 2, President Trump implemented his reciprocal trade tariffs. Most affected countries—over 75 to date—immediately reached out to initiate trade negotiations. China, in particular, retaliated with tariffs of its own. This retaliation triggered a sharp market sell-off lasting about four days. Behind the scenes, U.S. Treasury bonds also began to sell off significantly, pressuring the United States to roll back its reciprocal tariffs to a 10% level for 90 days. This move helped restore confidence in Treasury bonds, though it could also be interpreted as the U.S. softening its trade war stance.
As China retaliated, the United States responded with even more tariffs, essentially singling China out as the primary target of the Trump Trade Tariffs. It later became clear that part of China’s response involved aggressively dumping U.S. Treasury bonds and buying gold—sending gold prices to all-time highs. This strategic move forced the U.S. to temporarily ease its stance. The Trump administration attempted to frame this as a calculated maneuver to expose China’s hostile intentions. To some extent, it worked. However, due to the U.S.’s heavy reliance on China in its supply chain, the administration was compelled to grant temporary exemptions from the 145% tariffs on many goods.
By mid-April, products like iPhones and semiconductors were exempt from tariffs through the end of 2025 while alternative sourcing solutions were explored. Once these exemptions were announced and reciprocal tariffs paused, markets quickly rebounded out of bear market territory and into correction levels.
Economic Data Shows Some Weakness But a Market Recovery May be on the Horizon
Meanwhile, economic data for March started to reveal weaknesses. The American consumer—previously very resilient—is nearing a borrowing limit. Real estate prices are falling in key markets, and new sales are slowing. On the brighter side, several long-term initiatives have been launched to bring manufacturing jobs back to the U.S., particularly in the Rust Belt. These regions strongly supported President Trump’s reelection, and his policies appear aimed at revitalizing American manufacturing and reducing dependence on China—a prudent move in case of future conflict.
As we head into May, U.S. financial markets appear to be on a path to recovery. For now, fears of a trade war have subsided, and markets are reacting positively to each new trade deal announcement. For example, a pending deal with India would represent a major win for the Trump administration. As a longstanding adversary of China, India stands to gain significantly from the decoupling of the U.S. and Chinese economies.
Earnings Season Uncertainty
Earnings season has begun. Some companies, such as Snapchat ($SNAP), have seen their stock prices fall sharply after declining to provide forward guidance due to economic uncertainty. However, that uncertainty seems to be fading. Traders and investors expect a series of trade negotiations throughout the year, which should be broadly positive for both the markets and the Trump administration.
What could pose challenges, however, is the anticipated shortage of Chinese-made products in physical and online stores as pre-tariff inventory begins to run out—likely starting in late May or early June. Another major hurdle will be the passing of Trump’s so-called “New New Deal”—a sweeping bill that aims to dramatically reshape the U.S. fiscal framework.
In summary, April was a pivotal month. Markets teetered on the edge of disaster, only to recover significantly by month’s end. While the U.S. is currently engaged in a more intense trade war with China than in 2018, the broader strategy of decoupling the two economies may prove wise and long overdue. That said, in the short term, the transition will involve significant adjustments as the U.S. cuts China out of its supply chain and reintroduces domestic manufacturing in key sectors.
Until Next Month Trade Well.
Written by Michael DiGioia, Director of Education
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