Market Volatility, Trade Uncertainty and GDP: What We Learned in April 2025

Last updated May 11, 2025 by

Karan Iraddi

Category

Stock Market Investing

Published date

May 11, 2025

The Importance of Planning

April was one of the most volatile months in history as markets reacted to new tariff announcements. However, even though the S&P 500 fell as much as 12% during the month, the index rebounded and closed within one percent of where it started. Recent data also showed that the economy shrank slightly in the first quarter as companies stockpiled imported goods ahead of new tariffs. While bonds and international stocks were also volatile, they both contributed positively to diversified portfolios. This is yet another reminder of the importance of staying invested and diversified in times of uncertainty.

Key Market and Economic Drivers

• The S&P 500 fell 0.8% in April, the Dow Jones Industrial Average fell 3.2%, and the Nasdaq rose 0.9%. Year-to-date, the S&P 500 has declined 5.3%, the Dow 4.4%, and the Nasdaq 9.7%.
• The Bloomberg U.S. Aggregate Bond index gained 0.4% in April and is up 3.2% year-to-date. The 10-year Treasury yield ended the month at 4.16%, but was as low as 3.99% and as high as 4.49% over the month.
• The U.S. dollar index fell 4.5% to end the month at 99.5, near a three-year low.
• Bitcoin fell to $77,052 during the month, but ended at $94,581.
• The Consumer Price Index rose 2.4% in March compared to the prior year, slower than expected and the lowest reading since last September.
• Retail sales fell 0.9%, including a 1.9% decline in non-store retail sales (i.e., online shopping). The household savings rate rose slightly to 4.6% but is still below the historical average of 6.2%.
• The economy shrank slightly with GDP falling 0.3% in the first quarter, the first decline since Q1 2022. A significant increase in import activity drove this decline.

Lessons on staying invested after a volatile month

Once again, April demonstrated the importance of being prepared for market uncertainty. The month began with the White House’s April 2 tariff announcement on nearly all trading partners. These tariffs were far higher than investors had expected, leading to fears of rising inflation, a global economic slowdown, and a trade war. Stock markets reacted with the sharpest declines since the pandemic.

Stock market volatility jumped in April

The administration’s decision just days later to implement a 90-day pause for most countries helped fuel a market recovery. Additional exemptions on tariffs with China, including on technology products, further calmed investors’ nerves.

Despite significant swings throughout the month, major indices closed with only modest changes. Diversified portfolios also benefited from bond returns and a rally in international stocks. So, while the S&P 500 is down about 4.9% for the year with dividends, many balanced portfolios are closer to flat.

The accompanying chart shows that the VIX index, a key measure of market volatility, briefly crossed 50 for the first time since the pandemic. However, many of the largest declines during the month were followed by significant rebounds. This is a reminder that market swings can move in both directions, and trying to time these moves can often be counterproductive.

While markets have stabilized somewhat more recently, uncertainty remains and many of the drivers of April’s volatility will continue to be in focus. The situation around trade policy is still evolving, although the 90-day pause suggests that the worst-case scenarios may be less likely. Investors should expect that tariff headlines could continue to drive volatility in the near-term, even as markets adapt to the new trade landscape.

Why did GDP decline in the First Quarter?

One of the key concerns among investors is whether tariffs will drive inflation higher and growth lower. The latest economic reports show that the economy shrank slightly in the first quarter, with GDP declining by 0.3% over the period, the first contraction since early 2022. GDP is calculated by summing consumption, investment, government spending, and net exports (exports minus imports). When imports increase, they reduce net exports, which in turn lowers GDP. In this case, businesses were importing more goods, likely in anticipation of tariffs making those goods more expensive in the future. Consumer spending slowed but remained positive. It’s important to note that these figures are only the first estimate of GDP and are subject to change.

As the accompanying chart shows, consumer spending has been a key driver of economic growth in recent years. The latest surveys suggest that consumers expect a rapid acceleration in prices over both the coming year and in the longer run, resulting in historically low consumer confidence. While this has not yet impacted consumer spending or inflation in a significant way, it could be an important factor in the coming months.

The mixed picture on economic growth and inflation also makes the Fed’s job more difficult. Not only does the central bank face challenging interest rate decisions in the coming months, but its independence was briefly called into question by the White House, driving further market uncertainty. At the moment, markets expect the Fed to cut rates about four times this year, possibly beginning in July.

These events also resulted in unusual bond market swings, although they ended up near where they started. The 10-year Treasury yield ended the month at 4.16%, while corporate bonds saw yields edge higher. Some investors worried about a flight from U.S. assets, especially with the U.S. dollar falling to multi-year lows.

Why Long-term Investing Matters?