Week of April 28, 2025

Key Points for the Week

• After starting the week down, the S&P 500 bounced back last week.
• Last week saw multiple potentially bullish signals, that may indicate that the stock market has bottomed on a short term basis.
• Some softening of aggressive trade policy talk sparked the buying, along with solid overall earnings, but markets are still in a heavily news- and tweet-driven environment.
• From a macroeconomic perspective, uncertainty continues to dominate.

Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors.* We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

There has recently been a lot of negative sentiment. Many people – from consumers to small business owners, and from asset managers to investors – are feeling less optimistic. Here is the data.

• The University of Michigan’s Consumer Sentiment Survey’s final data for April showed that sentiment tumbled for the fourth month in a row.

“While this month’s deterioration was particularly strong for middle-income families, expectations worsened for vast swaths of the population across age, education, income, and political affiliation…Labor market expectations remained bleak. Even more concerning for the path of the economy, consumers anticipated weaker income growth for themselves in the year ahead. Without reliably strong incomes, spending is unlikely to remain strong amid the numerous warning signs perceived by consumers.”

Joanne Hsu, Surveys of Consumers Director

• The National Federation of Independent Business (NFIB) Small Business Optimism Index fell from February to March, settling just below its long-term average.

“The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months. Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”

Bill Dunkelberg, NFIB Chief Economist

• The Bank of America Global Fund Manager Survey showed that, in April, asset managers were the most bearish they have been in three decades with sentiment around economic growth particularly low.

“Fund managers are extremely gloomy, with 82 [percent] of respondents…expecting the global economy to weaken.”

Michael Msika, Bloomberg

• The American Association of Individual Investors (AAII) Sentiment Survey found that 55.6 percent of investors were feeling bearish about how the stock market will perform over the next six months. That is well above the historic average of 31 percent bearish.

It is fair to say that sentiment has been at extremely low levels. A contrarian would point out that this could be a positive development. When everyone is bearish, contrarians are bullish. They tend to look for opportunities to augment portfolio holdings with attractively priced investments that may help achieve long-term goals.

If you do not share a contrarian outlook, stay focused on the importance of remaining invested as stock and bond markets move higher and lower.

“All of this chaos underlined something that is historically true for the stock market – the sharpest percentage drops and largest percentage gains are often not far apart. For that reason, walking away from the market after a big drop could mean missing out on the market’s best days.”

Gordon Gottsegen, MarketWatch

For example, major U.S. stock indexes fell by more than two percent last Monday but, by the end of the week, the indexes had recovered those losses and moved higher. There were two drivers behind last week’s gains. The first was hope for a resolution in the U.S.-China trade war and the second was renewed confidence that Federal Reserve Chair Jerome Powell will remain in his position, reported Connor Smith of Barron’s. Yields on longer maturities of U.S. Treasuries moved lower over the week.

This Week in the Markets

Last week started with a drop in the S&P 500, but it ended with a four-day win streak and stocks ended up 4% on the week. The rally started when President Trump opened the door to drastically lower tariffs on China, but it was also a big week for earnings. Although future guidance remains murky at best, nearly 75% of the companies that have reported so far have beaten earnings expectations, giving last week’s strength some backup from market fundamentals.

S&P 500 Up Big Three Days in a Row

The S&P 500 just gained more than 1.5% for three days in a row. This type of rare strength is referred to as a buying thrust and it tends to happen early in bullish markets, as strong future returns are common after similar buying thrusts historically. In fact, stocks were higher a year later 10 out of 10 times.

A Lot of Stocks Up the Past Three Days

More than 70% of the stocks on the NYSE were higher Tuesday – Thursday of last week, another rare and potentially bullish clue. After this signal stocks have also shown strong future performance historically and have been higher a year later 26 out of 27 times.

It is not just the past three days though. We have been seeing extreme buying the past two weeks, again a rare and potentially bullish signal. We recently saw six out of 10 days with more than 70% advancers on the NYSE. This has a smaller sample size (only eight prior occurrences), but again historically has seen very strong future returns.

Dates like the lows in 1982, 2009, and 2020 show up this time, which always catches our attention. The next six months were never lower and up more than 14% on average; the next year higher every time and up more than 22% on average. Those numbers could have bulls smiling later in 2025.

Two Huge Days

The S&P 500 soared on April 9 and an incredible 94% of all stocks advanced that day. That was a clue something was happening, but we wanted to see another strong day nearby to confirm things. Well, that happened last Tuesday when there was another big up day with many stocks higher. On April 22 we saw more than 89% of the stocks (and total volume) advance. Having two such strong up days occur within nine days of each other is extremely rare, but another clue the bulls are trying to take back control.

It is rare to see this type of strength on two consecutive days. Four previous examples are early 1987, March 2009, August 2011 (after the US debt downgrade), and the COVID lows in March 2020. This is a small sample size. A common theme, in these past four examples, policymakers stepped in to provide relief in a big way. There is a chance we could see that again this time around if the Trump administration dials back tariffs significantly (although this is more righting a self-inflicted wrong than policy support), we get a meaningful fiscal stimulus bill, and the Fed cuts interest rates. More on these possibilities below.

The Bull and Bear Case for the Stock Market

Markets have been extremely volatile recently, with the S&P 500 experiencing nine 1%+ intraday moves over the first three days of this week. It is not that we have never seen volatility before — that’s part and parcel of investing. The difference now is that markets are hanging on, and reacting to, every little positive and negative policy pronouncement from the Trump administration.

Keep in mind that these are not actual policy changes, just clarifications and thoughts about what policy could look like. On Wednesday, the S&P 500 rose as high as 3.4% from Tuesday’s close after President Trump walked back some of the China tariffs, saying he will not play hardball with China and the final tariffs will be well below 145%. Of course, by afternoon, the White House was saying that there would be no reduction in China tariffs, and that there will be a fair deal with China. (Note that the Chinese are yet to get in touch with this Administration, and so this mostly looks like we are negotiating with ourselves.) The S&P 500 lost 2% over the rest of the day, before more tariff policy clarifications and non-clarifications prompted a brief rally, the index closing approximately 1.8% higher on the day.

It is hard for businesses to plan around any of this.

• Do you keep hiring?
• Do you let people go to raise cashflow? But what if all this goes away and you have trouble hiring?
• Do you raise inventories? But what if demand craters across the economy and you are stuck with goods you cannot sell?
• Do you raise prices and bet on “price over volume” (like in 2022-2023)?
• Do you do any capex investments? (This likely has an easy answer: no.)

As things become “impossible to predict,” some companies are starting to use scenario analysis to give profit guidance. For example, United Airlines said their outlook is dependent on the macro environment and so they gave two guidance benchmarks, one for a stable environment and another for a recessionary environment.

We thought it would be useful to do the same for markets, with a bull case and a bear case. To set a baseline we use the S&P 500’s price level, but broken into 12-month forward earnings per share (EPS) x the 12-month forward price-to-earnings ratio (P/E). The math is just Earnings * (Price / Earnings) = Price, since the Earnings parts “cancel.” It is a way of getting a stock index price forecast by breaking it into two important pieces. The goal is to come up with an estimate for the S&P 500 level at the end of the year. (It is currently around 5,400.)

At the end of 2025, the forward 12-month EPS will be the 2026 EPS estimate, and so it makes sense to focus on that instead of 2025 EPS (the assumption is that markets are forward looking). Right now, the 2026 EPS level is at $302/share (about 2% below where it started the year, at $309/share).

The forward P/E ratio for the S&P 500 is currently between 18 and 19. It was 22.4 at the end of 2024, well above the 41-year average of 15.5.

The Bull Case: Trump Caves, Completely

The bull case is that Trump removes almost all the tariffs. It is hard to imagine that the tariffs will go back to where they were, but perhaps we are left with about 10-15% additional new tariffs on average. It may even involve a phased approach (which was originally proposed in Congress), including something like 35% tariffs on Chinese goods that are not a threat to national security and about 100% for items deemed as strategic to US interests, but crucially, these would be phased in over five years. This would be very helpful for companies trying to navigate the tariffs (or that hope a future administration never imposes them). Perhaps the 25% steel and aluminum tariffs also remain, but we do not see other large sectoral tariffs, such as the 25% on autos, chips, electronics, and pharmaceuticals.

Ultimately, assuming we get clarity on all this, companies should be able to navigate the additional tariffs and maintain profit margins. Especially larger companies, who continue to benefit from what looks like the existing global trade regime. There is no decoupling from China, no reshoring of manufacturing, no “External Revenue Service” replacing the IRS, no “Mar-a-Lago” accords (with US debt held by foreign companies restructured to much longer duration).

Perhaps we get a few deals, or a “one size fits all” kind of a deal, where other countries purchase more defense goods form the US, along with more agricultural products and LNG. However, the trade deficit does not really shrink in any meaningful way, and there are not any deals on currency manipulation with countries like South Korea and Taiwan, let alone China. There is a question of what those countries get in return, but perhaps it is simply assurance that the US is no longer looking to completely break the existing global trade regime.

In this scenario, inflation does not spike to worrying levels, with ongoing shelter disinflation offsetting idiosyncratic spikes in some commodity goods that are impacted by the tariffs. Long-term inflation expectations remain quite tame, and the Federal Reserve resumes cutting interest rates, perhaps as early as July if not June, staying on track to cut rates 2-3 times in 2025.

Congress also provides a cushion for the economy by raising deficits even further via tax cuts. Beyond renewing tax cuts that sunset at the end of 2025, they provide additional tax breaks for businesses and households (like no taxes on tips, social security, and raising the level for SALT deductions). Spending cuts are also minimal, with entitlements like Medicaid avoiding removal. DOGE also remains a non-factor, which looks increasingly to be the case as they have already fallen well short of ambitions of cutting $2 trillion of spending (more like $5 billion to date). Elon Musk is stepping back soon as well, to focus more on his companies.

Of course, it does not mean things are perfect. There is an ongoing cost that gets harder to claw back the longer the current extraordinarily high level of tariffs stays in place. That is either going to hit consumers via higher prices (and thereby lower real income growth), or businesses via smaller margins.

Still, the economy chugs along around 1-2% real GDP growth. There is no real boost from cyclical areas like housing and manufacturing, which continue to meander under the weight of elevated interest rates, which are likely to remain “meaningfully restrictive” even if the Fed cuts 2-3 times this year. Housing is going to struggle if mortgage rates stay above 6-6.5%. Investment will likely lag amid uncertainty — even if the trade war stops and tariffs go away, the threat remains.

For the market, the best case looks like 2026 EPS estimates remain where they are currently, around $302/share. But the added risk premium for US equities could result in a lower multiple, of say 20x optimistically.

That would bring the S&P 500 level to about 6,040 (= 302 x 20). That is 12% higher than the current level of about 5,400 and results in a 3% price gain for the index over 2025. Add in dividends and the total return for the S&P 500 may be close to 5%. That would not be bad considering everything happening now.

Note that a near 5% return for 2025 would be par for the course for the third year of a bull market, where average returns have been close to 2%.

The Bear Case: Tariff-Cession

This is the base case for a lot of people now, and it is straightforward: the US goes into a recession over the next 3-12 months.

The tariffs on China may be pulled back but we still see 50-65% tariffs on Chinese goods, which would be about three times worse than the worst case a lot of people were expecting before Liberation Day. (Note that tariffs on China even on Liberation Day were 54%.) Of course, this is not as bad as 150% tariffs on Chinese goods, which would likely stop a lot of trade altogether. At the same time, severe sectoral level tariffs remain, including on steel and aluminum, autos, pharmaceuticals, copper, chips, electronics, and even lumber.

Compounding the pain, the Fed sits back and pauses on rate cuts as idiosyncratic goods inflation puts core PCE on track to hit 3.5-4% by the end of the year (it is at 2.6% now). This is despite the unemployment rate starting to move past 4.5% (currently at 4.1%). But the Fed offers no relief as they focus on the inflation side of their mandate, as they did in 2022. They may eventually slash rates but it will likely be too late — though the turnaround may really start when rates hit bottom.

Plus, there is no relief from Congress either, as there is not much room to increase deficit spending above current high levels of about 6% of GDP. The tax cuts are renewed but that simply maintains the status quo, with no additional boost — in contrast to what we saw in 2020 with CARES, or even via the Infrastructure Act, CHIPS Act, and Inflation Reduction Act in 2022-2023 (offsetting the impact of Fed rate hikes).

We start to see a drop in aggregate income, from a 4% annualized pace to about 2% or lower, as hiring freezes become commonplace and layoffs begin. As a result, employment gains drop, and hours worked also pulls back.

At the same time, it is not like all of this happens in a vacuum, with the Trump administration sticking to their guns on tariffs.

Reaction and Conter-reaction Kicks In

As things started to get progressively worse, markets may start anticipating relief from the Trump administration, and/or the Fed. Maintaining the tariffs at massively high levels can lead to an adverse market reaction (in addition to an actual collapse in goods imports, leading to shortages and several small and medium sized companies going out of business). And as we saw over the last two weeks, the Trump administration is likely to try and dial back from extreme levels to avoid visible pain in markets (like in the bond market) or even on “Main Street” (as company CEOs warn of shortages and empty shelves).

Also, household and corporate balance sheets are in reasonable shape and not as leveraged as they were in 2007. So, we should be able to avoid a financial crisis, a la a 2008-style meltdown in markets and the economy. We could see 2026 EPS downgraded by about 10% (from $302/share to $272/share), and P/E ratios fall to about 16x (near the historical average). That would bring the S&P 500 level to about 4,349, which is 19% below where we are now and would represent a 26% decline for the index in 2025.

A Long Slog and Exod-US

It is hard to put precise odds on the bull and bear case, since it is entirely subjective and we really do not know how committed the Trump Administration is to breaking the current global trade regime and forging a completely new one. Even if the goal is to reshore manufacturing, that is going to involve increasing the share of manufacturing value-add in the economy, at the expense of services, but that is big reversal of what has been happening in the economy for the last few decades. Keep in mind that this also involves changing how US multinationals generate profits, with global sales but also supply chains that crisscross the globe to keep costs low. Of course, companies are going to figure out how to navigate the situation, but it is going to take some time. All this also assumes we have clarity on what “normal” looks like.

What we may get is a pinging back and forth between momentum toward the bull and bear case, especially as reflexivity kicks in. As things get better, the Trump administration feels even more emboldened in their mission to remake the global trading system. However, as they do this, adverse reactions in markets and companies across America lead to dialing tariffs down (or tariff rhetoric). For example, we may not see many deals being negotiated (and signed) before the 90-day pause is up, in which case we could see yet another 90-day pause. Plus, sectoral tariffs may be paused, or several companies may be given exemptions. In short, the dynamic we have seen over the past three weeks continues to play out over the next several months, and perhaps even beyond.

In the meantime, America’s trading partners work around the US, either making deals with each other, and/or stimulating consumption within their own economies. Countries like China and Germany boosting consumption would arguably be good for the US, and especially US multinationals (who get to benefit from growth abroad). However, high uncertainty in the US leads to plunging investment. We may not get a recession under this scenario, but employment growth may remain lackluster, and we could see more inflation volatility over the next 2-3 years (especially with durable goods getting more expensive, amid idiosyncratic supply chain issues). This also means the Fed may keep rates elevated for much longer. That is going to dampen housing activity, let alone the manufacturing sector (a double blow since they will also get hit by tariffs).

Short term uncertainty may also lead to longer term structural uncertainty. The reality is we do not have much experience with this, since the level of tariffs may remain higher than with Smoot-Hawley in the early 20th century. That is not to say we will experience a Depression (far from it, we may not even get a recession). However, consumers and businesses may pull back from making large spending and investment decisions, eventually trying to adjust to a new “normal.” Of course, there is also the possibility that any new normal reverts to some version of the old pre-Liberation Day normal if there is a new administration in 2028.

Ultimately, if uncertainty continues, the risk premium on US assets is likely to go up. That means lower multiples for equities and higher term premiums for bonds. This is also not to say the US dollar will collapse — there is too much of a network effect for that to happen anytime soon — but the standing of the US, particularly US assets, gradually diminishes, most notably their role as the go-to “risk-free” asset amid a crisis.

In a sense, this would be America voluntarily pulling back from the rest of the world, what you might call an “Exod-US” like Brexit, but in a much bigger way.

Stories Have Influence and So Do Storytellers

Anyone who reads (or listens to) a lot of books, blogs and stories knows that the narrator is important. Sometimes, a story is told from a single point of view and other times it will have multiple perspectives. No matter how many narrators tell the story, each one presents the situation (or series of events) they are describing in a way that reflects their point of view and/or values.

The stories that are told about an economy or events that may affect that economy can be powerful because they also can influence human behavior and affect investment decision-making.

“The idea that emotional states may affect the economy has a long intellectual history. John Maynard Keynes regrettably missed his chance to coin ‘vibe-cession’, but he wrote extensively about how peoples’ instinctive ‘animal spirits’ drove crashes and recoveries. Taking this idea one step further, economist Robert Shiller has advocated for a more detailed study of economic narratives, or contagious stories that shape how individuals view the economy and make decisions.”

Joel Flynn and Karthik Sastry, VoxEU

Tariff turmoil has offered some insight into the influence of storytellers and narratives on investors. For example, last week, Tracy Alloway and Joe Weisenthal of Bloomberg’s Odd Lots reported that the head of economics research at a market research company compared recent ups and downs of the Standard & Poor’s (S&P) 500 Index with the presidential advisor or cabinet member who was telling the administration’s story.

“Since the beginning of March, the S&P has lost a total 719 points on days when [Commerce Secretary] Lutnick and [Senior Counselor for Trade and Manufacturing] Navarro have been the biggest stories. On days where [Treasury Secretary] Bessent is in the news, we have seen the S&P 500 go up by a total of 52 points. Contagious narratives are an important driving force in the business cycle…Not all narratives are equal in their potential to shape the economy, and the fate of a given narrative may rest heavily on its (intended or accidental) confluence with other narratives or economic events.”

Joel Flynn and Karthik Sastry, VoxEU

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

Maryland Addresses Budget Deficit

Maryland has recently enacted several tax, and fee increases to address a $3.3 billion budget deficit. Key changes include:

Income Tax Adjustments:

• High-Income Earners: New tax brackets have been introduced:

  • 6.25% for individuals earning over $500,000 annually.
  • 6.5% for those earning over $1 million annually.

Vehicle-Related Fees:

• Registration Fees: For a typical passenger car, the annual registration fee is approximately $110.50, and the biennial fee is around $221, marking an increase of over 60% from previous fees.
• Electric and Hybrid Vehicles: Electric vehicle owners are subject to an additional $125 surcharge every two years during registration, while plug-in hybrid owners face a $100 surcharge biennially.

Tobacco and E-Cigarette Taxes:

• Cigarettes: The excise tax has increased from $3.75 to $5.00 per pack of 20 cigarettes.
• Other Tobacco Products: The tax rate has risen from 53% to 60% of the wholesale price.
• Electronic Smoking Devices: The sales tax rate has increased from 12% to 20% for devices, including vaping liquids sold in containers exceeding 5 milliliters.

Gambling and Cannabis Taxes:

• Casino Table Games: The tax rate has increased from 20% to 25%.
• Sports Betting: The tax rate has doubled from 15% to 30%.
• Recreational Cannabis: The tax rate has risen from 9% to 15%.

Information Technology Services Tax:

• A new 3% tax has been imposed on information technology services, with an exemption for quantum computing services in College Park.

These measures are part of a broader strategy to generate approximately $1.6 billion in revenue and implement $2 billion in spending cuts, aiming to balance the state's budget while maintaining a $2.1 billion reserve fund.

Did you Know? This Week in History

April 29, 2004: World War II Monument Opens in Washington, D.C.

On April 29, 2004, the World War II Memorial opened in Washington, D.C. to thousands of visitors, providing overdue recognition for the 16 million U.S. men and women who served in the war. The memorial is located on 7.4 acres on the former site of the Rainbow Pool at the National Mall between the Washington Monument and the Lincoln Memorial. The Capitol dome is seen to the east, and Arlington Cemetery is just across the Potomac River to the west.

The granite and bronze monument features fountains between arches symbolizing hostilities in Europe and the Far East. The arches are flanked by semicircles of pillars, one each for the states, territories, and the District of Columbia. Beyond the pool is a curved wall of 4,000 gold stars, one for every 100 Americans killed in the war. An Announcement Stone proclaims that the memorial honors those “Americans who took up the struggle during the Second World War and made the sacrifices to perpetuate the gift our forefathers entrusted to us: A nation conceived in liberty and justice.”

The memorial was inspired by Roger Durbin of Berkey, Ohio, who served under Gen. George S. Patton. At a fish fry near Toledo in February 1987, he asked U.S. Rep. Marcy Kaptur why there was no memorial on the Mall to honor World War II veterans. Kaptur, a Democrat from Ohio, soon introduced legislation to build one, starting a process that would stumble along through 17 years of legislative, legal, and artistic entanglements.

The monument was formally dedicated May 29, 2004, by U.S. President George W. Bush.

Weekly Focus

*“Character is like a tree and reputation like a shadow. The shadow is what we think of it; the tree is the real thing.” *

Abraham Lincoln, 16th President of the United States

”Next to excellence is the appreciation of it.”

William Makepeace Thackeray, English Novelist and Illustrator

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