If somehow you spent the month of April off the grid and came back to see index returns that are basically flat, you might have thought the month was nothing notable. In fact, it was anything but.
Those who can remember the global financial crisis experienced a form of PTSD watching volatility and price moves that were eerily reminiscent. At that time, the S&P 500 was down by nearly 13% at one point, and it experienced the largest intra-month reversal since March of 2009, which, thankfully, was the ultimate low of that crisis. During the month, the DJIA experienced six days in which the index moved over 1000 points (two days up, four down), roughly 10% of all the moves of that magnitude in its history.
The reason for much of this volatility is the fault of one individual in Washington, and, given that most of this seems self-inflicted, there is some optimism that it can be just as easily reversed. However, that may take longer than the most optimistic among us hope for. Once confidence is lost, it takes time to rebuild. It has taken decades to create stable global trade and supply chains, yet these relationships now all seem under threat.
This uncertainty has created an environment in which no one has clarity of what is coming over the next month, let alone the next decade. As a result, management teams around the world have slammed the brakes on expansion plans and capital expenditures. The wave of mergers and acquisitions that was expected this year has not materialized, and IPO activity is nonexistent. In summary, most global activity has slowed and is at risk of putting major economies into a recession.
The area that first picked up on the ramifications of these actions was the bond market. With the U.S. having to refinance a large portion of its debt over the coming months, there is a goal to see lower bond yields. But the opposite has occurred. Erratic Trump actions and increasing deficits risk the U.S. losing its safe-haven status.
Global investors have been among the largest buyers at bond auctions for years, but are now questioning how much they will buy going forward. With a lack of interest, yields have moved higher. Higher yields and a slowing economy are never a positive development, adding more fear.
One area of the market that has enjoyed this environment is gold. It had already broken out to all-time highs in many other currencies, but as the U.S. dollar has substantially weakened since Inauguration Day, gold has now joined the party in U.S. dollar terms as well. This really has been the perfect environment for gold: increasing uncertainty, falling currencies, stubborn inflation, and increased central bank buying are all helping to spur demand.
While some of these factors may reverse or slow, it’s unlikely they all turn in the near term. As many assets saw their correlations increase to one early in the selloff, those that held gold were reminded of the reason they own it as the original safe-haven asset.
As the month wrapped up, markets began to recover. Tariff increases were walked back, threats against the job prospects for Fed Chair Powell were reversed, and seemingly cooler heads were prevailing. We may finally be seeing that market activity, both in equities and fixed income, was having an impact on Washington policy. After 100 days in office, in which most of the policy actions centred around sticks, maybe we might soon be seeing some carrots?
It's nice to see the markets recover, but the damage has been done. Investor confidence has been shaken, and corporations have scaled back spending. Recession risks have increased, and this will weigh on earnings in the foreseeable future. For an equity market that came into the year overbought and expensive, the only path higher was through earnings growth; that might be a long shot given this uncertainty.
Three months into President Trump’s four-year term, confidence has been shaken. This creates a dangerous environment, yet also one that can offer opportunity. After a few years in which everything seemed to move higher, it appears the next few will be more challenging.
All data sourced from Bloomberg unless otherwise noted.
"By the numbers" displays the total returns for the month of March 2025.
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