Every pencil has an eraser for a reason.
Almost to the minute that Q1 commentary was finished, the tariff landscape shifted again, so much so that we could have rewritten the commentary. The back and forth, the ups and downs, has been troubling for investors craving certainty.
Most recently, the U.S. raised tariffs on Chinese goods to 145%, while China countered with 125% tariffs on American products. The situation is evolving quickly and continues to affect financial markets.
On Tuesday, April 22, Treasury Secretary Scott Bessent said he expects a “de-escalation” in the trade war with China in the “very near future” causing the market to rebound after Monday’s decline. Monday’s decline was caused in part by the President Trump’s public criticism of Federal Reserve Chairman Jerome Powell. Investors were also encouraged by the president’s wavering on threats to fire Mr. Powell.
On Wednesday, April 23, Bessent noted that any tariff reductions would not be unilateral and that both sides would need to make concessions
In a rare moment of correlation, the bond market has also been more volatile lately. Bond volatility can occur when markets adjust to significant economic or policy changes, such as the ones taking place around tariffs and the independence of Fed policymaking. Investors are weighing two potential outcomes: trade wars may raise prices, fueling inflation (typically negative for bonds), or they could slow economic growth (typically positive for bonds). Added to this are concerns over liquidity, possible shifts away from U.S. assets, and technical market factors. Still, some perspective helps: the 10-year Treasury yield is around 4.3%, within its two-year range. In general, interest rates are higher than many investors expected at the start of the year.
Despite this, most bond sectors are still showing positive year-to-date returns including the U.S. Aggregate Bond Index, Treasurys, and investment-grade corporate bonds.
Regardless of how bond prices move in the coming weeks, bond yields remain attractive compared to the past two decades. For income-focused investors, current yields can help provide ballast to portfolios amid ongoing uncertainty.
Making sense of economic headlines can be challenging, especially as market data shifts. Although some numbers have changed since our Q1 commentary, our key conclusions remain the same.
For long-term investors, the priority should be sticking to a financial plan aligned with their goals and circumstances. A well-diversified portfolio plays a vital role in that strategy. Although markets may continue to react to headlines, staying invested is essential to benefit from rebounds when they occur.
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