What Happened Last Week
- Yields Stabilized: Despite Trump’s consideration of firing Powell, 10-year yields declined, supported by several solid Treasury auctions.
- Equity Volatility Eased: Selling continued in large-cap growth and tech, even as stocks showed less sensitivity to tariffs.
- Diversification Returns: Broader market participation continued as small caps and internationals rallied last week, despite the U.S. large-cap growth sell-off.
What We’re Watching This Week
- Trade Talks: U.S.–Japan negotiations in Washington are in focus following a lack of progress last week.
- Earnings Season: Approximately 20% of S&P 500 companies will report 1Q earnings; forward-looking guidance, rather than historical financial performance, is our primary focus.
- Data and Auctions: The April Purchasing Managers’ Index (PMIs) offer the first look at global business sentiment changes since Liberation Day. Mid-curve Treasury auctions will test investor appetite for U.S. debt.
Investment Management Team Views
Stability in U.S. Treasury yields was the key theme in last week’s holiday-shortened trading, which was relatively quiet by today’s standards. The 10-year yield fell 16 bps to close the week below its year-to-date average. The post-Liberation Day decline in bond prices appears to have been more technically driven rather than a major reassessment of the creditworthiness of U.S. government debt. Although we can’t signal the all-clear yet, the improved bond market price action in a week where President Trump has openly called for the firing of the Fed Chair is notable. Powell’s firing would be a massive risk-off event for stocks and bonds, but investors have already seen the White House pivot once due to market pressure.
In contrast to the first two weeks of April, equity volatility was considerably more tame in last week’s trading. Markets have become considerably less sensitive to the back-and-forth on tariffs. Last week, selling pressure persisted in domestic large-cap growth and tech stocks, while the broader global equity market performed better. Small-caps saw modest gains, and international developed markets realized healthy returns. Following a prolonged period of narrow, AI-driven market action, the revival of diversification is a key theme to watch in 2025. As earnings season progresses, company-specific stories are starting to take precedence over the confusing macroeconomic news flow, a welcome development in our view. Decent results and cautious guidance are the early takeaways, but we will have much more information to work with over the next two weeks.
Trade remains central to the macroeconomic outlook this week, as U.S.–Japan negotiations continue in Washington following little progress last week. Roughly 20% of the S&P 500 by market cap, including two Magnificent Seven names, report earnings. Treasury auctions for intermediate-term debt will test market demand, following strong results in the five others since Liberation Day. On the data front, Wednesday’s global PMIs offer the first look at April activity in the U.S. and other developed markets.
