Liberation Liquidation 

President Trump issued his tariff plan last Wednesday, which he proclaimed as U.S. “Liberation Day” and painted as a glorious day in American history.  Hyperbole aside, the markets didn’t like the news and sold off hard on Thursday on fears the announcement would trigger a trade war. True to form, China announced it was responding with 34% tariffs on goods imported from the U.S. — and markets continued to plunge through the end of the week. 

Are we done? It could depend on how quickly, if at all, the countries identified as “bad players” come back to the table. At the very least, it seems that now that we have Trump’s plan, we’re a long way toward gaining certainty about the path forward, which is a positive for markets. 

True, there is still uncertainty about how the targeted countries will react. We saw that from China last week, and their announcement will most likely be greeted with higher tariffs from our administration. But the markets are currently off on the assumption the worst will happen — and we don’t think the worst is in the cards. Wednesday went a long way to dissipating some of the uncertainty. Markets and businesses don’t care how long the field is or how high the grass on the field is; they just need to know what the rules are and that the field isn’t constantly changing. They will find a way forward. 

Still, the Dow has been in and out of correction territory, and the S&P 500 and Nasdaq are already in correction territory, with the latter going in and out of bear territory. It seems likely that we’re close to a bottom at this point. Unless the economy falls off a cliff, tariffs will become less of a headline and the focus will shift to taxes, foreign policy and economic growth. 

Is this the beginning of the end or the end of the beginning? Markets go up and they go down, but in the end, they go up far more often than they go down. This latest bout of volatility will pass. It’s the price we pay for higher returns, and we could still end the year higher than where we started. Ten years ago, the S&P 500 was just over 2,000 points. Five years ago, it was 2,500 and one year ago it was 5,200. This is the normal life cycle for the markets. Stay the course, avoid giving in to panic and stay focused. This will pass. 

Jobs and Recession Fears 

Lost in all the shock and awe of the tariff turmoil: jobs reports for March. The ADP employment report came in at a healthy +155,000, outpacing the +120,000 consensus number. The Bureau of Labor Statistics payrolls number delivered as well; we added 228,000 jobs in March, far above the forecasted 131,000. Meanwhile, headline unemployment ticked up from 4.1% to 4.2% in March. Health care had the biggest gains in new jobs, and we saw a decline in temp services and the government sector. Jobs, at least for the moment, appear to be just fine. 

J.P. Morgan is predicting a 60% chance (up from 40%) that the global economy will enter a recession by the end of 2025. Meanwhile, Goldman Sachs raised its prediction of a recession this year from 20% to 35%, noting economic fundamentals were not as strong as in previous years. 

The market is now pricing in five rate cuts from the Federal Reserve by year-end, up from a meager two just a few weeks ago. Fed Chair Jerome Powell spoke on Friday and didn’t help matters by saying, “We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation. While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.” Just what free-falling markets want to hear. 

So here we are, at a pessimistic bottom with the Fed telling us to get ready to lose jobs (which we haven’t yet) and to be prepared to live with higher inflation. Isn’t that why the Fed is here, for price stability and full employment? 

We keep hearing that our current circumstances are unprecedented and somehow different, but so were the dot-com bubble, the global financial crisis, the “taper tantrum,” the U.S. debt downgrade and the pandemic — and those are just the ones that come to mind first. Somehow, we managed to make it through those events to a better place, and even though this is once more “unprecedented,” we will emerge in a better place. It’s just a little hard to see through to that right now.