Weekly Market Recap: Volatility Returns - Opportunities Emerge Amid Trade Turbulence
Market Overview
Markets endured a turbulent week as escalating global trade tensions weighed heavily on investor sentiment. The S&P 500 plunged 9.05%—its worst weekly drop since early 2020—while the tech-heavy NASDAQ led losses with a 10% decline. The Russell 2000 and Russell 1000 Growth indexes followed suit, shedding 9.64% and 9.62%, respectively. In contrast, value stocks showed relative resilience, reinforcing their YTD leadership within U.S. equities.
The selloff was sparked midweek by President Trump’s sweeping tariff announcement—10% on all imports and steeper levies on goods from the EU (20%), Japan (24%), and China (34%). China retaliated swiftly with identical 34% tariffs, sending markets into a tailspin amid fears of a full-scale trade war. While modest early-week gains cushioned the blow somewhat, Thursday and Friday’s steep declines erased them entirely.
Internationally, European stocks slumped on fears of retaliatory measures and deteriorating growth prospects, even as ECB rate cut expectations surged to 90%. In Asia, Japan and China bore the brunt of the downturn, though Taiwan was somewhat shielded by holiday closures. The Bloomberg Commodity Index slid, dragged down by a staggering 11% drop in WTI crude oil, as demand fears and geopolitical strife took center stage.
Fixed income markets saw a sharp rally, with yields falling across the board. The 10-year Treasury yield dropped to 4.01%, down 31 basis points on the week, while bond indices posted healthy gains as investors sought safety. High-yield spreads widened dramatically, signaling growing risk aversion.
Federal Reserve Insights and Economic Roundup
The Fed remains in a precarious position as it weighs rate cuts amid growing economic uncertainty. Chair Jerome Powell acknowledged that tariffs may have a larger-than-expected economic impact, emphasizing a cautious, data-driven approach. Rate markets now fully price in four cuts for 2025, with odds rising for a fifth.
The labor market provided a silver lining. March nonfarm payrolls rose by 228,000, driven largely by health care (+54,000), which remains relatively insulated from trade disruptions. However, revisions to January and February employment figures subtracted 48,000 jobs, and federal government employment fell.
Stagflation concerns are growing. The ISM manufacturing survey showed rising prices—now at their highest since mid-2022—alongside contracting employment and new orders. Meanwhile, the job openings rate dipped to 4.5%, matching pre-pandemic levels and pointing to a normalization of labor demand.
Despite rising wages (3.8% YoY growth) and modest inflation (Core CPI at 3.1%), the mix of slowing business activity and elevated input prices suggests stagflation risks are creeping back into the narrative.
The Week Ahead
The focus will shift to key inflation and sentiment indicators:
- Monday: Consumer Credit (Feb)
- Tuesday: NFIB Small Business Optimism (Mar)
- Wednesday: MBA Mortgage Applications, Wholesale Sales & Inventories, FOMC Minutes (Mar 19)
- Thursday: Headline & Core CPI (Mar), Real Earnings, Jobless Claims, Federal Budget Balance
- Friday: Headline & Core PPI (Mar), University of Michigan Consumer Sentiment (Apr prelim)
Market participants will be watching closely for signs that inflation pressures are abating—or worsening—amid an increasingly fragile growth environment.