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Market Brief - April 2025

Posted:May 4, 2025

Categories: Bear Markets, Bonds, Central Bank, Commodities, Economy, Federal Reserve, Gold, Markets, Stock Market, US Treasuries

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Spring has arrived across our great nation. Identifying the seasons changing in Southwest Florida is a little harder, but the signs are there. The sun rises earlier and sets later, the temperature and humidity increase, and afternoon rain showers become commonplace. My property and casualty insurance business experiences a last gasp of craziness right before Easter, then begins to taper as our “snowbirds” fly north for the season.

It’s an understatement to say financial markets experienced a change during April. When economic historians look back on 2025, I believe “Liberation Day” will be one for the history books. As I detailed last month, the current administration is undertaking a complete sea change to the global monetary order, the likes of which we haven’t seen for 80 years. For this fact alone, markets experienced massive down and up days. However, markets remained resilient and many stock markets finished the month higher.

For this report, I will walk through each asset class, discuss what occurred, and draw possible conclusions for the future. While a month is very short, some valuable lessons can be learned from April.

Equities

The stock market experienced a massive shock from “Liberation Day,” quickly wiping out about $9 trillion in value. Tariffs drove the news as markets digested the plan from the "big, beautiful" whiteboard on the White House lawn. Worries over Trump firing the sitting Federal Reserve chair also roiled markets, but this eased as many felt it would be a bad idea for Trump to eject Chair Powell. With tariffs and trade worries cooling towards mid-month, the markets clawed back most gains as the S&P 500 rose 1% monthly. Momentum stocks and the “Mag 7” ended the month higher, along with the Nasdaq 100, up 3.4% in April. European stocks fared better, with the index rising 5.1% for the month.

Figure 1: Equites - April 2025

Source: TradingView

A few takeaways from this month’s action.

First, stock markets remain incredibly resilient and attractive for liquidity and capital worldwide. Although flows into and out of the US stock market have been wild this month, the US remains attractive for capital due to its open markets and stable rule of law.

Second, volatility was high and remained high. Figure 2 shows the stock market volatility measured by the VIX (blue line) and the bond market volatility measured by the MOVE (red line) index. Both experienced massive moves higher on the month. These remain elevated, signaling the worst may not be over regarding the tariffs, trade war, and volatility. Anything can happen as we move forward, and I would not be surprised if we see further downside.

Figure 2: VIX & MOVE - April 2025

Source: TradingView

Lastly, while the market was nearly down 20% from its peak, calling this a “crisis” is premature. I think the better way to view this market action is that the market is beginning to price in a trade war between the two superpowers, the United States and China. This is a theme I’ve written about in the past and plan to write more about in the future. The interplay between the US and China has been the theme in economics and markets for most of the 21st century and now appears to be picking up steam.

Bonds

The bigger story this month likely came from the bond market. During the “Great Moderation” of the past 40 years, whenever stocks fell, bonds rallied, providing excellent diversification for the venerable 60/40 portfolio. As I’ve written, this trend appears to be changing. During April, all areas of the bond market lost value, with the total bond market down 1% and long-term treasuries down 4.2%. Investors should take note, but not abandon bond allocations. One of the US Treasury's main goals is to lower interest rates to provide a smoother rollover of the large amount of US Treasury debt coming down the pike. While I feel long-term interest rates will continue to rise in the years ahead, I can see lower rates for the immediate future.

Figure 3: Bonds - April 2025

Source: TradingView

Interestingly, there appears to be a shift out of US Treasury bonds on the margin from central banks and global investors. Some of these concerns are that significant debt has accumulated over the past 20 years on Sovereign balance sheets. It’s natural for some of this to be sold during a panic. I admit there is also a level of distrust concerning the fiscal position of the United States. And yes, some of this appears to be flowing into gold and other assets, such as US equities. However, keep in mind that global asset flows are a relative game. If Treasury rates move higher, I would expect capital to flow back into this market as the US remains attractive for fiat-currency bonds due to high liquidity and the market's stability.

The Sovereign Credit Default Swap (CDS) market shows some hard evidence of this change in sentiment. This market measures the price an investor will pay for insurance against a default on US Treasuries. In my estimation, the chance of an outright default on US Treasuries is currently zero, but the market has begun to price in a higher chance of this nonetheless. This index rose 38% on the month, as seen in Figure 4.

Figure 4: United States 5 Years CDS - April 2025

Source: worldgovernmentbonds.com

Commodities

The commodities market tells a slightly different story. A basket of commodities finished the month lower by 4.4%. Copper fell 7.4% and oil fell 17.8%. This speaks of the market anticipating a global slowdown in growth due to the trade war and tariffs.

Gold rose on the month, briefly hitting an all-time high of $3,500 per ounce. For the month, gold was higher by 3.8% and is up 26% yearly. Capital flows continue to be strong from central banks and other market participants.

Figure 5: Commodities - April 2025

Source: TradingView

Currencies

The US dollar fell sharply as the Euro strengthened by 4.5% over the month. This is a significant move for a currency in such a short time. Some of this is due to the above-mentioned flight away from US Treasuries. The dollar's value remains a key metric to watch in the coming months. Finally, China remains stuck to pegging its currency to the dollar. The USD/CNY cross rate was flat on the month. At some point, this has to break as China has accumulated a massive debt of its own during the 21st century.

Figure 6: Currencies - April 2025

Source: TradingView

Summary

As an avid runner, I typically go for a long run in the early hours of Sunday morning. This past week was no different. A gentle rain started as I was lacing up my shoes, and I knew this meant humidity. Spring always brings higher humidity, making for more challenging runs. I’ve learned to embrace this challenge and see it as an opportunity to increase my fitness and endurance.

Like fitness for long-distance runners, investors should also embrace volatile markets. They bring many opportunities, such as looking for opportunities to buy assets during market selloffs and staying resilient in asset allocation plans during down markets.

Sources: Kwanti Portfolio Analytics, TradingView

 

Quote of the Month

“The stock market is designed to transfer money from the active to the patient.”

Warren Buffett

 

References

DISCLOSURES & INDEX DESCRIPTIONS

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