Doc’s Economic Insights

April 2025

The first quarter saw investors transition from concerns that the economy might be growing too quickly to worries that uncertainty surrounding tariff policy might push the economy into recession.  Stocks came under pressure during the first week of January as stronger than expected economic reports on January 7, and better than expected jobs growth revealed on January 10, raised concerns that the Federal Reserve would need to scale back plans to reduce interest rates.  Subsequent economic reports showed more modest growth, prompting a rally that propelled the S&P 500 to a record high on January 23, up 4% for the month to that point.   On January 27, claims that Chinese AI developer DeepSeek had succeeded in training an AI model at much lower cost and using fewer AI chips than other developers led to a sharp selloff in Nvidia and other AI stocks.  Following this setback, the S&P 500 finished January with a gain of 2.7% for the month overall.

Stocks stumbled out of the gate in February after President Trump announced a 10% tariff on imports from China and 25% tariffs on goods from Canada and Mexico.  Stocks rallied back on February 4 when agreement was reached to pause the Canadian and Mexican tariffs.  Stocks trended higher through February 19.  The S&P 500 achieved a new all-time high at the close, up 1.9% for the month to that point.  Stocks slid sharply on February 21 after disappointing guidance on future revenue from Walmart raised concerns that the economy and earnings growth might be slowing.  Selling continued on February 24 when it was announced that the US would move forward with 25% tariffs on imports from Canada and Mexico.  The S&P 500 finished February down 1.3% for the month overall.

Concerns about tariffs pushed stock prices lower through the first half of March.  By the close on March 13, the S&P 500 was down more than 7% for the month overall.  Stocks began to rally back on March 14, after the Senate passed a funding bill that prevented a potential government shutdown.  Stocks posted additional strong gains on March 24, following reports that broad reciprocal tariffs that had been planned for April 2 would be delayed and future tariffs would be focused on specific industries rather than countries.  Stocks resumed their slide on March 26 following reports that automobile tariffs would be announced on April 2.  At the end of March, the S&P 500 was down more than 5% for the month overall and down more than 4% for the quarter overall.

Although the financial markets are likely to remain volatile, we remain optimistic about the stock markets’ long-term prospects.  The negative effect of today’s uncertainty about tariffs and their associated disruptions to supply chains is likely to be offset by the benefits of lighter business regulation and an extension of the 2017 tax cuts later in the year. It should be noted that stock valuations outside of the technology sector continue to be attractive.  Market volatility also leads investors to rotate their portfolios toward stable stocks.  For further details on each of these points, please see below.

The Economy:

  • At 4.1% the US unemployment rate remains near historical lows and the economy continues to add new jobs each month – suggesting the labor market remains healthy.
  • Although the Federal Reserve is unlikely to reduce the Fed Funds rate significantly during 2025, monetary policy overall remains supportive.
  • Corporate earnings growth for 2025 is expected to exceed 6%.

 

Investment Valuations:

  • Investors continue to reassess the valuations of technology shares.  Many stocks outside this sector have attractive valuations.  This is a great environment for active stock managers, particularly ones that look for stocks with reasonable valuations.
  • In volatile markets, investors tend to rotate toward stocks that have provided more stable returns in the past.  Stocks that possess economic moats tend to have more stable returns and often benefit in these environments.

 

This report has been generated from information that Arbor Financial believes to be reliable and accurate. We do not represent or warrant the accuracy or completeness of the information contained in this report. As such, all calculations, estimates, and opinions included in this report constitute our best judgment as of this date and may be subject to change.  Past performance does not guarantee future results.

 

Written by
Vice President, Research & Analysis at Arbor Financial Services | peter.jankovskis@arborfinancialservices.com

Peter has more than 25 years of experience in the financial industry as a researcher, strategist, and portfolio manager.  As a portfolio manager at Arbor, Peter performs quantitative analysis on current and prospective portfolios.

Peter is a CFA charter holder.  He earned his PhD in Economics as well as dual Bachelors of Science degrees in Computer Science and Pure Mathematics from the University of California, Santa Barbara.

Before joining Arbor, Peter was a Founding Member of institutional money manager OakBrook Investments and worked there for 22 years serving in a variety of roles including portfolio manager, Director of Research, and co-Chief Investment Officer.  Prior to forming OakBrook, Peter worked at ANB Investment Management & Trust Company as a strategist, portfolio manager, and Head of Research.

Peter has lived in Lisle, Illinois since 1997.  Outside of work he enjoys sports car racing and is an active member of the Autobahn Country Club in Joliet, Illinois and the Sports Car Club America (SCCA).

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