Written By: Nate Garrison, CIO, World Investment Advisors
What Happened on Wednesday, April 9?
The "Pause"
On Wednesday April 9th, President Trump announced a 90-day pause on reciprocal tariffs for all countries that have not retaliated against the tariffs announced by the Trump Administration on April 2nd. The one exception was China, where Trump announced a further tariff increase to 125% and subsequently – on April 10th – to 145%.1 The previous tariffs levied on Canada
and Mexico also remain unchanged.
The Reaction
In response to the “pause”, European Union officials announced they would hold off on their retaliatory tariffs, while China announced its own escalation of tariffs against US goods.
Markets reacted positively to the news on Wednesday, with the S&P 500 finishing the day 9.52% higher – the third biggest daily increase since World War II. The tech-heavy NASDAQ composite rose by 12.16% while the Dow Jones Industrial Average followed suit increasing by 7.87%. The gains were widespread across domestic sectors, but not across regions. All domestic S&P sectors performed strongly while international developed and emerging market equities finished the day in negative territory.
On the news that the US increased tariffs on China on Thursday, April 10, however, the S&P 500 gave back much of those gains, dropping -3.46%. The NASDAQ dropped -4.31%, and the Dow Jones Industrial Average fell -2.50%.
We expected this type of volatility in equity markets to happen, and we expect it may continue as developments and any agreements (or lack thereof) related to trade and tariffs unfold over the next several weeks and months.
Bond Market Problems
While most of the headlines were on the equity markets, one possible explanation for the policy reversal could be the
deterioration in the Treasury market. The 10-year Treasury yield spiked by more than 20 basis points to 4.51% on Wednesday
before the pause announcement. It would have been on track for its biggest weekly jump in more than a decade. The scale
and speed of the sell-off in the Treasury market also caused bid-ask spreads to widen to double their normal levels. This is
significant because higher yields push borrowing costs higher, which is in direct contrast to the Administration’s stated goal of
lowering the 10-year Treasury rate.
The bond market stabilized after the “pause” announcement. President Trump then told reporters on Wednesday that, “The
bond market now is beautiful” following his tariff pause. This statement further signals that the Administration is paying close
attention to the movements in Treasury yields and monitoring them for signs of stress. The 10-year Treasury stabilized in the
range of 4.26% to 4.39%.
We think the Treasury market will be a critical input for the Administration in determining how far it can push tariff
policies. If yields start to rise to uncomfortable levels, then it's more likely we would see a rollback of how aggressively the
Administration pursues tariffs, similar to what we saw on Wednesday.
The Fed and the Tariffs
Fed Chair Jerome Powell noted in a speech on Friday, April 4, 2025, “Looking ahead, higher tariffs will be working their way
through our economy and are likely to raise inflation in coming quarters … [and while] tariffs are highly likely to generate at
least a temporary rise in inflation, it is also possible that the effects could be more persistent.”2 Powell’s comments during the
question-and-answer session after his Friday speech suggest that the Fed will continue to monitor economic conditions, but
they will not act (i.e., cut the Fed Funds Rate) until they have more clarity on the trajectory of inflation or labor markets.
Core inflation data released on Thursday April 10 was below 3% for the first time since March 2021.3 We believe this will give
the Fed more room to act in case the job market starts to weaken due to an economic slowdown sparked by the tariffs.
Consumer sentiment continues to drop, while consumer inflation expectations continue to rise.
Although the Fed is holding firm for now, market participants are anticipating lower rates in the coming years. The yield curve
dropped over 20bps between the 1- to 10-year Treasuries from immediately prior to the tariff announcements through Friday
April 2, but rates have moved up since then.4 The 2-year Treasury yield dropped as low as 3.68, its lowest rate since 2022.
Notably, the long end of the yield curve is higher than it was at the original tariff announcement date, which is the opposite
of the Administration’s stated Administration’s goal of lowering interest rates.
What's Next?
It is not clear yet if the “pause” will become permanent. The Trump Administration announced they are negotiating with
trade partners to strike new deals. These could result in some, but not necessarily all, of the tariffs being reduced or
eliminated. At this time, we view it as likely that the 10% minimum tariffs on all countries stays in place.
The escalating tensions with China are concerning. President Trump singled out China as the lone country receiving higher
tariffs as part of the “pause”. Trump stated his willingness to negotiate with President Xi of China, but no progress has been
made yet. Economic conflict between the two largest economies in the world is a major risk impacting global economic
growth prospects and global markets.
Going Forward
Remain Diversified
Over the past year, we have encouraged clients to diversify portfolios that were especially heavy in US large caps (especially
large cap growth) stocks into other asset classes, including international equities and investment-grade fixed income.
We continue to encourage clients to be properly diversified and allocated in accordance with their risk tolerance and
investment objectives. If you have not already, work with your financial advisor to ensure that your portfolio is prudently
diversified and invested.
Invest for the Long Term
It’s normal to watch the markets during periods of extreme volatility with concern. It’s not advisable to check your portfolio
balances daily and panic.
There have been numerous events and shocks to the economy and markets over their history, and with enough time, markets
have always rebounded. Drawdowns are normal, and they are part of the reason why equities return so much more than
other asset classes over time. Stick to long-term investing for your goals.
Do Not Panic.
Some of the best days in the history of the US stock market occur after some of the worst days. Market drawdowns can
sometimes provide investors opportunities to make thoughtful, prudent improvements to their portfolio, but it's important to
remain invested in accordance with your personal investment strategy.
If your investment horizon aligns with your liquidity needs, and if you are properly allocated and invested to meet your longterm
goals, stick to your plan and ride out the storm. Working with your financial advisor can help provide more confidence
with this planning.
The WIA Investment Team will continue to monitor policy, markets, and the economy, and provide you updates and our analysis in the weeks and months to come.
For assistance with your workplace retirement plan, please schedule a call with the SMARTMap Financial Advocate team here.
Sources:
1. Ana Swanson, “Trump Has Added 145% Tariff to China”, White House Clarifies, The New York Times,
https://www.nytimes.com/2025/04/10/business/economy/china-tariffs-145-percent.html, accessed 10 April 2025.
2. Powell, Jerome. Speech by Chair Powell on the Economic Outlook, Board of Governors of the Federal Reserve System, 4 Apr. 2025,
www.federalreserve.gov/newsevents/speech/powell20250404a.htm, accessed 6 April 2025.
3. U.S. Bureau of Labor Statistics, Consumer Price Index Summary, retrieved from U.S. Bureau of Labor Statistics;
https://www.bls.gov/news.release/cpi.nr0.htm, April 10, 2025.
4.US Department of the Treasury, Daily Treasury Par Yield Curve Rates, retrieved from U.S. Department of the Treasury;
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025,
April 10, 2025.