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At a glance

President Trump’s “Liberation Day” tariff announcement pressured global equities on fears of slower global growth due to the scale of tariffs. Investors sought the safe haven of U.S Treasuries, pushing yields lower.

Number of the week:

-18.1%

The year-to-date return of the Russell 2000 Index, representing small-company stocks, through April 4.

Term of the week:

Russell 2000 Index

Measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market.

Quote of the week:

President Trump’s tariff initiative sparked fears of a global trade war resulting in elevated inflation and stagnant economic growth. For U.S. equities, this likely implies more muted returns, a result of moderating earnings growth and lower multiples.

― Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank

Global economy

Quick take: President Trump’s retaliatory tariffs dominated headlines last week, expanding concerns about economic slowing.

Our view: The U.S. economy appears likely to moderate in 2025 as the economy adapts to new tariffs. Tariffs pose some risks to slow but improving growth in developed markets, including the eurozone, the United Kingdom (U.K.) and Japan.

  • President Trump unveiled his tariffs on April 2 — 10% on all countries and higher rates for those with tariffs and trade barriers exceeding that level. He excluded Canada and Mexico, which are already subject to certain tariffs outside of goods covered by the U.S.-Mexico-Canada Agreement. The tariffs do not apply to aluminum, steel or autos, which are already subject to 25% tariffs, or to products likely to be covered in future sectoral tariffs — pharmaceuticals, semiconductors, copper, lumber, oil and certain critical minerals. China retaliated with additional 34% tariffs on U.S. goods, while the White House said 50 countries wish to open negotiations. Investor concerns shifted to slowing growth; many analysts downgraded growth expectations and raised the odds of a recession.
  • The labor market remains strong. Payrolls rose 228,000 in March, accelerating from gains of 117,000 and 111,000 in February and January, respectively. Gains for leisure and hospitality, retail and transportation suggest an easing of weather-related challenges. The unemployment rate ticked up to 4.2% from 4.1% in February and the labor force participation rate ticked up to 62.5%. Wage growth remains solid, rising 3.8% year-over-year in March, while February job openings ticked lower, to 7.6 million, but remain well above the estimate of unemployed workers.
  • Purchasing manager indexes slipped for both manufacturing and services in March, according to Institute for Supply Management (ISM), driven by ongoing economic uncertainties. The manufacturing index showed contraction for the first time this year on weakness in new orders, employment and production along with rising input costs. Services fell on slowing new orders and a contraction in employment, bringing the index to 50.8, its lowest rate of expansion since June 2024.
  • Foreign purchasing manager surveys indicated solid growth, according to S&P Global, with services still stronger than manufacturing. India remains quite strong joined by a modest recovery in China. The eurozone, U.K. and Australia continue to see modest gains, though manufacturing activity remains weak across Europe. Japan shifted into contraction; services were flat and manufacturing continued to contract with cost pressures increasing.

Equity markets

Quick take: Stocks plummeted last week with tariff uncertainty, persistent inflation, waning consumer confidence and expectations for moderating earnings growth weighed on investor sentiment. First quarter results and associated company guidance are among upcoming catalysts.

Our view: President Trump’s tariff initiative sparked fears of a global trade war resulting in elevated inflation and stagnant economic growth. For U.S. equities, this likely implies more muted returns, a result of moderating earnings growth and lower multiples.

  • Broad-based weakness followed higher-than-expected tariffs. For the year as of Friday’s close, the S&P 500, NASDAQ Composite and Russell 2000 are down 13.7%, 19.3% and 18.1%, respectively; 10 of 11 sectors are negative. The reasons for weakness include size of the tariffs (significantly above the 10%-15% baseline expectation), immediacy of the tariffs (reshoring will take time) and uncertainty of the duration and whether President Trump will be open to negotiation.
  • Investors are experiencing COVID déjà vu. In 2022, during the height of the COVID pandemic, the S&P 500 declined 19.4%. Early that year, there was much uncertainty surrounding the magnitude and duration of COVID. Despite this uncertainty, staying invested positioned portfolios to benefit from the rally that ensued in 2023 and 2024. There are similarities with COVID and 2025 tariffs. Uncertainty reigns. The extent to which tariffs will negatively impact company revenue and earnings trends remains unknown. We favor a balanced exposure between the technology-oriented growth sectors and defensive/income-oriented sectors.
  • Inflation, interest rates and earnings still support U.S. equities. However, there is risk to both inflation and earnings. Companies have no incentive to be overly optimistic. The first quarter corporate reporting period unofficially begins on Friday, April 11. Consensus projections are for revenue and earnings to increase 4.2% and 7.0%, respectively, according to FactSet.
  • Analysts forecast robust earnings growth, with downside bias. Consensus projections currently reflect S&P 500 earnings of approximately $268 per share for 2025, according to Bloomberg, FactSet and S&P Cap IQ, reflecting roughly 10% year-over-year growth. However, we expect guidance for 2025 to be tempered, particularly given tariff-related uncertainty, putting pressure on already elevated multiples.

Bond markets

Quick take: Fears that tariffs may drag on economic growth prompted a drop in Treasury yields last week as investors sought safety and amid expectations for faster Fed rate cuts, benefiting high-quality bonds.

Our view: High-quality bonds generate steady income returns, and bond prices often rise as prices of riskier assets fall, helping insulate portfolios from market volatility. Exposures to bond categories offering extra yield over Treasuries can be hurt when investor sentiment erodes, but the extra income can meaningfully improve long-run returns.

  • Bond yields reflect expectations that the Fed will cut interest rates more than 1.0% this year. At the beginning of the year, yields priced expectations that the Fed would cut one or two times in 2025. Yields fell last week in anticipation of faster rate cuts on concerns that tariffs could slow economic growth, and now price in four to five rate cuts this year. Inflation is still a risk and the labor market is still strong, but the Fed may choose to cut in coming months amid heightened economic uncertainty. Fed Chair Jerome Powell echoed this sentiment on Friday saying, “We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation.” He said the Fed still views policy as in a good place to navigate changing growth and inflation conditions, implying the Fed can adjust policy as needed to balance its full employment and price stability mandates. High-quality bond prices rose as 10-year Treasury yields fell 0.25%. Allocating to high-quality bonds within fixed income exposures provides important stability for portfolios.
  • Cautious investor sentiment can cause volatility in riskier bonds, but extra income tends to improve long-run returns. Structured credit categories like non-agency mortgages delivered positive returns last week despite riskier asset prices falling. Non-agency mortgages are not backed by the government, so prices can fall when investors favor traditional safe havens like Treasuries. However, high-quality non-agency mortgages incorporate significant structural protection from losses in underlying mortgages. Collateralized loan obligations (CLOs) have similar structures that ensure lower-quality slices absorb credits losses first, protecting investors in higher-quality CLOs. The highest-rated CLOs dropped approximately 0.75% last week as investors demanded incremental compensation for incurring credit risk. While ongoing price swings across stock and bond markets can impact structured credit prices, the extra income presents return opportunities for investors with longer time horizons.

Real assets

Quick take: Economic growth concerns from tariff announcements weighed on real asset prices last week. Real estate investment trusts (REITs) dropped 6%, slightly better than broader equity indices. Prices declined on commodities that rely on global economic growth to fuel demand, such as oil and copper. Gold prices also fell slightly but are up more than 15% year-to-date.

Our view: Cautious investor sentiment can cause volatile swings in asset prices, including publicly traded real estate, but REITs remain an important component of diversified portfolios. Rental income from REIT exposures can provide a consistent source of return that supports long-run opportunities despite near-term price swings.

  • REIT prices fell last week but still outperformed broader equity indices. Generating income can benefit REIT investors during periods of heightened economic and market uncertainty. Decreasing Treasury yields can also improve the relative attractiveness of REIT income opportunities compared to bonds. Despite falling Treasury yields last week, REIT prices were unable to overcome the broader headwind from cautious investor sentiment. REITs most sensitive to economic conditions like hotel chains performed the worst while telecommunication REITs performed best, due to being somewhat insulated from near-term growth concerns. Despite negative performance last week, broad REIT exposures have outperformed the large U.S. stocks by 9% this year. Going forward, lower Treasury yields could benefit REITs by decreasing borrowing costs and making REIT income more attractive for investors relative to bonds, although volatility may persist as investors weigh the impact of tariffs on economic activity.
  • Broad commodity exposures fell 6%, as oil, copper and other economically sensitive assets dropped. Oil prices fell more than 10% last week to the lowest level since 2021, driven by concerns that slower economic growth could weaken oil demand. The Organization of Petroleum Exporting Countries (OPEC) also announced plans to increase oil production next month above previous expectations. Investors’ economic growth concerns also weighed on copper prices, which fell almost 15% last week. Gold prices dropped slightly, ending the week down 1.5%. Some investors favor gold during times of economic and geopolitical uncertainty, but cautious investor risk appetite can weigh on gold when prices of other assets broadly decline.
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Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The NASDAQ Composite Index is a market-capitalization weighted average of roughly 5,000 stocks that are electronically traded in the NASDAQ market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market. The S&P Global Purchasing Managers' Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. The Institute of Supply Management Manufacturing Index, also called the Purchasing Manager's Index, measures manufacturing activity based on a monthly survey, conducted by the Institute for Supply Management, of purchasing managers at more than 300 manufacturing firms.

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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. 

Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.

Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments.

The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes.

There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

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