Juncture Wealth Strategies - April 2025 Market Update
Uncertainty
The Trump Administration’s rapid-fire actions have increased uncertainty regarding economic growth, inflation, jobs and corporate earnings. Households and businesses seem to be pausing their spending and investing plans until they can assess the impact of the new policies. These plans should be resumed once investors can assess the impact of Trump’s policies.
Generally, investors who invest in stocks during times of uncertainty may be rewarded.
Tariffs If you have found yourself flummoxed by the various tariff regimes announced, enacted and paused, then you are not alone. Most investors, business managers, and households are confused by the entire tariff strategy. To provide some clarity to the situation, Anna Wong, Chief US Economist at Bloomberg, published the accompanying illustration which shows the various tariffs’ effective rates. As shown, the effective tariff rate exceeds 20% versus the pre-Trump tariff rate of approximately 2%. These tariffs are rewriting trade relationships. It is widely expected that the Trump trade team will negotiate new trade deals with major trade partners which are preferential to the announced tariffs. |  |
US Assets
Last week, the US asset markets experienced significant volatility. Many commentators have speculated that the Trump Administration’s tariff regime and bucolic comments regarding trade partners are incenting foreign investors to reduce their new purchases of or current holdings of US assets. It is important to note that US asset markets rely heavily upon foreign investors. If these investors begin to repatriate those funds, US asset markets may suffer more volatility.
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US Assets Rely on International Investors The US benefits from being the destination of choice for international investors. To put it simply, foreign investors:
Being the world’s premier destination for investment has allowed the US to expand its economy, finance its debts and elevate its standard of living. It is important to understand that the current trends in trade and finance will upset those asset flows. |  |
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Economic Growth
Economic growth has slowed as Trump begins to rewrite the rules of the US economy. Household and businesses are slowing their spending as they begin to assess how these new policies will impact them. Less spending will slow the US economy. The Atlanta Federal Reserve Bank created an index to estimate the current real GDP. It is important to note this is just a preliminary estimate, but it provides some insight into the economy’s direction.
| Economic Growth - Consumer Confidence The Conference Board compiles consumer and business surveys to ascertain how the economy is doing. One survey they compile is the Consumer Confidence Index. The Consumer Confidence has two sub-indices: Present Situation Index and the Expectations Index. The Present Situation Index provides insight into how consumers view their present situation from financial, employment, and income perspectives. The Expectations Index assesses how consumers and businesses are feeling about their situation in six months. It can be instructive to forecast consumer spending. |  |
Financial Stress
To investigate how the uncertainty is affecting the financial markets, we look at the Financial Stress Index. The St. Louis Federal Reserve Bank created the index using 18 weekly market metrics to measure financial stress. The chart illustrates the Financial Stress Index. The average level of zero should be interpreted as market conditions are normal. Levels less than zero indicate very little stress while values greater than zero indicate a higher level of stress. Currently, the Financial Stress Index is 0.094 which indicates slightly above average level of stress.
Inflation Expectations Investors and consumers have begun to raise their inflation expectations. Higher inflation could come from 1) implemented tariffs and 2) fewer workers. If implemented as announced, tariffs will add 0.5 – 1.0% to inflation over the next year. After that year, it shouldn’t add to future inflation unless more are added. The quieter factor is worker deportations. A saying in the financial markets defines inflation as “too much money chasing too few goods.” The “too few goods” implies disruptions to our goods supply. One of the effects of deporting undocumented workers is that we have fewer workers supplying our agricultural and construction products. This could increase our food and shelter costs in the future. |  |
Volatility It can be helpful to know the history of volatility within the stock market. The chart shows each year since 1980. The gray bars indicate the annual return for the Standard & Poor’s 500 Index while the red dots show the largest decline during that year. Please note that the stock market has an intra-year decline of 14% while 75% of those years produced positive returns. Another way of looking at it, investors should expect the stock market to experience a 5% decline approximately 3.4 times per year and a 10% correction around 1.1 times per year. Bear market declines of 20% or greater occur once every 3.5 years.
Long-term investors can use the volatility to their benefit by buying stocks when stocks during corrections. They can rebalance their asset allocations by selling bonds/cash and buying stocks. |  |
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