May Economic Update

Market Summary

Once again, headline-based volatility continued in April in light more tariff news from Trump Administration’s April 2nd announcement, causing wild swings both to the down and upside throughout the entire month. The S&P 500 fell precipitously but managed to rebound to post a -1.14% loss on the month, while the Nasdaq 100 managed to squeeze out a marginal gain of 0.69%, and the small cap Russell 2000 lost -2.39 %. (1)

More Tariffs

As noted in last month’s newsletter, On April 2nd, dubbed by the White House as "Liberation Day," President Trump declared a 10% tariff on all imports, with higher rates targeting countries with substantial trade deficits, labeled by the White House as “reciprocal tariffs”. (2)

In addition, President Trump directly entered into a tit-for-tat tariff war with the People’s Republic of China (PRC). We began the month with the additional 34% tariff imposed onto Chinese imports, for a net total of 54% when factoring in existing tariff rates from Trump ‘s first term. China then raised their tariff rates on US imports into their country, which in turn, Trump raised the US’s tariff rate. This cycle continued for over a week and eventually ended with the US imposing a staggering 145% tariff on imports from China. Just recently over this past weekend, the President did state that this rate will not be permanent, nor is it sustainable, but regardless of whether the rate is lowered, anything over 30% will significantly harm US companies and consumers. (3)

CEOs from some of the top retail stores in the US, Walmart, Target, and Home Depot, recently visited the White House and applied significant pressure, warning the President of empty shelves and large price increases if his policy is not changed. (4)

A week after “Liberation Day”, President Trump announced that he will pause the reciprocal tariffs for 90 days to give other countries time to negotiate terms of these tariffs with the Administration. This did not include China due to their “retaliation” in response the April 2nd announcement. This also excluded the 10% minimum for all goods entering into the country, the 25% tariff on all auto imports, and the 25% tariff on all steel and aluminum imports. This did cause the market to rebound on the heels of the announcement until retracing lower again once the news was fully processed. (5)

Earnings and Economic Data

Later in the month, positive earnings from tech giants Amazon, Microsoft, Google, and Meta sparked another relief rally and as we sit today, the market remains significantly overpriced with the S&P 500 having price-to-earnings ratio of 28.20 – far above the historic norm of 18. (6)

The most recent Gross Domestic Product (GDP) report showed the US economy contracted last quarter for the first time since 2022 at a rate of 0.3% with GDP sales falling -2.5%. Consumer sentiment also dropped once again to a low not seen since 2022, and inflation rose for the second month in a row. (7)

Looking Forward…

As we move into May, the markets remain on edge with investors closely monitoring trade negotiations and economic indicators. The interplay between tariff policies and economic performance will be pivotal over the next several months. We do not believe the full price of tariffs is priced into the market at this moment, even if Trump does negotiate lower tariff rates. Furthermore, the 90-day reciprocal tariffs delay means that this market volatility will continue well into this summer as the markets brace for the final announcements in July.

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Monthly Financial Tip:

When financing a new car purchase, consider applying for a loan before you shop for a vehicle. This will give you negotiation strength by being able to challenge the dealership to beat the preapproved financing you already attained.

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Citations:

1. Charles Schwab, March 31, 2025

2. White House, April 02, 2025

3. CNBC, April 02, 2025

4. CNN, April 02, 2025

5. Wall Street Journal, April 02, 2025

6. Financial Juice, April 02, 2025

7. Investing.com April 25 & 30, 2025

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.