Financial Market Roundup
Produced by Fifth Third's Investment Management Group
In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of April 2025.
GLOBAL
TRENDS
On April 2, President Donald Trump announced reciprocal tariffs on goods imports on a country-by-country basis, which were more severe than market participants expected.
These tariffs were in addition to the tariffs announced prior to April 2. In response to this announcement, investors have noticed a considerable increase in global trade uncertainty, lower business sentiment, lower consumer sentiment and elevated market volatility. Market and economic fundamentals that Fifth Third’s Investment Management Group favor — labor market strength, moderating inflation, easing monetary policy, strong corporate earnings — remain resilient; however, we suspect these fundamentals will deteriorate until a clear path forward for global trade is agreed upon by policymakers and businesses alike.
After restrictive monetary policies helped to curtail persistent inflation, most global economies have begun to lower interest rates to help foster growth and support global labor markets. Short-term interest rates from most of the world’s largest central banks are still elevated relative to the last decade, which adds pressure to global financial systems. Offsetting these easier global financial conditions is a sharp increase in global trade policy uncertainty.
While the war in Ukraine continues, progress towards a ceasefire continues to take place. Aside from the human tragedy that is always associated with war, these conflicts have also added to risks and volatility for financial markets.
Taken together, recent global and economic actions have kept investors on edge. Despite these concerns, global economic growth remains resilient, driven by consumer spending in most developed nations. We expect this to continue in 2025, although likely at a slower rate than historical norms.
CENTRAL BANK
POLICIES
The Federal Open Market Committee last met on March 19 and held interest rates steady, keeping their target range for the federal funds rate at 4.25%-4.50%.
What did change was their plan to slow down the pace of quantitative tightening, or balance sheet runoff. Investors also took note of a change in tone in the formal statement and subsequent press conference due to increased uncertainty. Federal Reserve Chair Jerome Powell stated in his press conference that “the new administration is in the process of implementing significant policy changes” while noting that “uncertainty around the changes and their effects on economic outlook is high.” The committee meets next on May 7, and markets are not expecting any changes to the target interest rate. Looking out over all of 2025, as of the end of April, markets expect four 25-basis-point interest rate cuts as implied by federal funds futures.
The European Central Bank last met on April 17 and lowered their target interest rate by 25 basis points. In a prepared statement, it was noted that future decisions “will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.” As of the end of April, market participants expect another 25-basis-point cut from the ECB when they meet next in June.
EQUITY
PERFORMANCE
Domestic equities displayed a considerable jump in volatility and ended the month lower following the tariff announcements on April 2. Specifically, the S&P 500 fell by 0.7%, and the blue-chip Dow Jones Industrial Average dropped by 3.1% over the month.
The tech-heavy NASDAQ composite was higher by 0.9%. International stocks were higher, with the MSCI Emerging Markets Index posting gains of 1.3% and the MSCI EAFE Index of developed international equities gaining 4.6%. Finally, the MSCI All Country World Index of developing and developed market stocks gained by 1.0% during April.
Earnings season is well underway, with over 320 companies in the S&P 500 having reported their financial results as of May 1. Current earnings growth has been strong, with growth of 14.1% compared to first-quarter earnings of 2024. From a sector lens, the good news on earnings growth has not been uniform, with three sectors showing earnings growth of at least 15%, while two sectors have shown earnings contracting by at least 20% this earnings season.
What has been gaining more attention than actual earnings results is how companies are updating their guidance on future earnings. Earnings expectations for full-year 2025 have been moving lower over the year, and the pace of downward revisions has picked up steam in the last month. Within the S&P 500, Bloomberg notes that over 320 companies have seen expectations for future earnings contract over April.
INTEREST RATES
AND GROWTH
On April 30, U.S. GDP in the first quarter of 2025 detailed considerable changes in imports and private investment as consumers and businesses grappled with changes to domestic trade policy.
The result of the changes was a contraction for the overall economy of 0.3%, the first negative quarterly growth figure since 2022. Despite the volatility, the largest driver of GDP, private consumption, continued to show residual strength despite cooling for the prior two quarters.
At the March FOMC meeting, the Fed released their latest summary of economic projections, which details the central bank’s outlook on a variety of prospective economic measures. Specifically, investors digested lower expected GDP growth, higher unemployment and higher core inflation forecasts for 2025.
During the month of April, the U.S. Treasury yield curve moved lower across most term points. Specifically, the two-year U.S. Treasury yield fell by 28 basis points and ended the month at 3.60%. The 10-year U.S. Treasury yield fell by four basis points to end the month at 4.16%. In addition to lower Treasury yields, credit spreads, or the premium investors require for credit exposures, moved higher for both investment-grade and high-yield credit bonds over the last month.
Mortgage rates moved higher in April as Freddie Mac’s 30-year Primary Mortgage Market Survey showed the 30-year fixed-rate rose to an average of 6.81%, up 16 basis points from March 27.
POLITICAL AND
REGULATORY TRENDS
Trump announced reciprocal tariffs on goods imports on a country-by-country basis, which were more severe than we or market participants expected.
These tariffs seek to decrease the trade deficit, promote domestic manufacturing and protect American workers. The net effect of these policy changes resulted in the largest increase in the effective tariff rate on imported goods since the 1920s, which has put downward pressure on business sentiment and upward pressure on inflation expectations from U.S. consumers.
In addition to the trade efforts, Trump continues to be very active, with over 140 executive orders signed during the first 100 days of his second term.
INVESTMENT
TRENDS
The strength in the current earnings season for U.S. equities is being offset by lower guidance on future earnings, driven by trade uncertainty.
As a result, domestic equity returns have been negative over the last month and for 2025 year-to-date. Headline inflation has moved lower but continues to be elevated, with March’s consumer price index moving down to 2.4%. Core prices, or CPI excluding food and energy, also continue to be above the U.S. central bank’s 2.0% target, with the most recent reading detailing core prices rising by 2.8% over the last year. The U.S. GDP report for the first quarter of 2025 detailed a contraction of 0.3% in economic growth due to a dramatic increase in import activity. Finally, the Fed’s latest summary of economic projections detailed an expected 2025 year-end GDP of 1.7%, with inflation measures above the central bank’s target of 2.0%.
Tighter fiscal policies, global trade uncertainty, cooling-but-persistent inflation domestically and abroad, and geopolitical tensions continue to weigh on investor sentiment. On balance, the headwinds and tailwinds currently at play suggest there is a potential path for global economic growth, albeit at a slower pace than initially expected.
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