Weekly Update 04/17/2025: Markets Remain Volatile on Tariff Headlines as Earnings Season Gets Underway

Apple gets reprieve on tariffs for their products
Ventas will benefit from the announcement of the proposed rate hike announced late last Friday by the Centers for Medicare & Medicaid Services
Johnson & Johnson releases earnings beating profit and revenue expectations while offering strong fiscal year guidance; they raise their dividend 4.8%
Omnicom releases earnings beating profit expectations; CEO comments on tariff implications
Travelers releases earnings beating profit and revenue expectations remaining confident in the face of uncertainty; they raise their dividend 4.8%
Kinder Morgan releases earnings beating revenue expectations while reinforcing their business model despite economic uncertainty; they raise their dividend 1.7%
ABB releases earnings beating profit and revenue expectations; they announce spin-off of their robotics division

Domestic Economic News

In a relatively short-lived reprieve at the outset of the week in the ongoing tariff saga, it was announced very late last week that President Donald Trump’s administration exempted smartphones, computers and other electronics from its so-called reciprocal tariffs, potentially cushioning consumers from sticker shock while benefiting electronics giants including SGK core holding Apple Inc. The exclusions, published late last Friday by US Customs and Border Protection, narrow the scope of the levies by excluding the products from Trump’s 125% China tariff and his baseline 10% global tariff on nearly all other countries. The exclusions would apply to smartphones, laptop computers, hard drives and computer processors and memory chips. Those popular consumer electronics items generally aren’t made in the US. Setting up domestic manufacturing would take years. The products that won’t be subject to Trump’s new tariffs also include machines used to make semiconductors. That would be important for Taiwan Semiconductor Manufacturing Co., which has announced a major new investment in the US as well as other chipmakers. The exclusions stem from the initial order, which prevented extra tariffs on certain sectors from stacking cumulatively on top of the country-wide rates. The exclusion is a sign that the products may soon be subject to a different tariff, albeit almost surely a lower one for China. One such exclusion was for semiconductors, to which Trump has regularly pledged to apply a specific tariff. He hasn’t yet done so but the latest exclusions appear to correspond with that exemption. Trump’s sectoral tariffs have so far been set at 25%, though it’s not clear what his rate on semiconductors and related products would be.

Stocks declined sharply in Wednesday trading alongside the dollar as Jerome Powell stressed the importance of keeping consumer prices in line, dampening hope for a near-term interest rate cut. Treasuries climbed with the yield on 10-year US government debt hovering around 4.29%. The chair of the US central bank stuck to recent messaging, saying the central bank’s focus remained on preventing potential tariff-driven price hikes from triggering a more persistent rise in inflation. Swaps traders left wagers for at least three rate cuts this year in place. Earlier, Cleveland Fed President Beth Hammack took a similar stance suggesting the Fed should hold interest rates steady until there’s more clarity on the impact of the administration’s levies.

Ramping up the pressure on the administration Wednesday, California Governor Gavin Newsom sued to halt Donald Trump’s tariffs, setting up a high-stakes legal challenge to the president’s landmark effort to overhaul global trade. The state is challenging Trump’s use of emergency powers to enact broad tariffs against Mexico, China and Canada. The governor cited harm to consumers and businesses, including those in agriculture and entertainment, in California, which has the world’s fifth-largest economy. “President Trump’s new tariff regime has already had devastating impacts on the economy, creating chaos in the stock and bond markets, wiping out hundreds of billions of dollars in market capitalization in hours, chilling investment in the face of such consequential presidential action with no notice or process, and threatening to push the country into recession,” according to the complaint filed Wednesday in San Francisco federal court. Newsom, a Democrat who’s considered a likely candidate to run for president in 2028, and California Attorney General Rob Bonta are seeking a court order to immediately block the levies. “No state is poised to lose more than the state of California,” Newsom said at a press conference as he warned of dire consequences for the state’s budget and economy. Trump’s unprecedented use of the International Emergency Economic Powers Act, or IEEPA, to impose tariffs on imports has rattled markets, prompted forecasts of a potential recession and strained relationships with overseas trading partners. The IEEPA, passed in 1977, gives the president broad authority to regulate certain financial transactions when declaring a national emergency in response to an “unusual and extraordinary threat.” It has traditionally been used to place sanctions on countries, companies and individuals. Trump became the first president to use the statute to impose tariffs when he announced levies in February against China, Mexico and Canada to respond to the “extraordinary threat” of undocumented immigrants and illegal drugs moving through US borders. In April, Trump cited what he says is the country’s persistent trade deficit. The president is already facing at least three legal challenges to his tariffs, though major industries caught in the tariff crossfire have held off from any legal action for now. Two complaints were filed by conservative legal advocacy groups on behalf of small businesses, and the third by members of the Blackfeet Nation tribe in Montana. California’s suit, like the previous cases, alleges that the IEEPA doesn’t give Trump authority to impose tariffs and that his actions violate the law absent congressional approval. “Congress hasn’t authorized these tariffs, much less authorized imposing tariffs only to increase them, then pause them, then imminently reinstate them on a whim, causing our nation and the global economy whiplash,” Bonta said at the press conference. Justice Department lawyers have argued that the tariff challenges should be handled by the Court of International Trade in New York, which specializes in lawsuits against the government over trade issues, and are seeking to transfer cases filed in US district courts to the trade court.

California accounts for roughly 14% of the nation’s gross domestic product, has a 40 million population and would be considered one of the largest economies in the world if it were a standalone country. Newsom has said that its economic weight gives California leverage on the global stage, but it also makes it vulnerable to tariffs. The state plays a crucial role in agriculture and US manufacturing, including semiconductors, computer equipment and vehicles. It exported $24 billion in agricultural goods in 2022, nearly 13% of total US farm exports. Almonds were the biggest contributor at $4.7 billion, followed by dairy products, pistachios and wine, with top buyers including Canada, the European Union, China and Hong Kong. Newsom said the impact of the tariffs have already forced him to adjust the state budget he’ll be submitting in May. The revised budget will “reflect a downgrade in economic outlook in this state,” he said at the press conference, adding that he expects a dip in economic growth and capital gains revenue. State and independent economists Newsom met with in recent weeks informed him that “they have significantly downgraded the GDP projections for the state of California next year, recession fears have increased as a consequence of this toxic uncertainty, the likelihood that our unemployment rate will go up, not down, and that the environment will precipitate in higher inflation,” the governor said. Newsom has previously said he would seek to insulate the state from Trump’s tariff plan by going directly to global trading partners and seeking exemptions, even though it’s unclear how he could pursue international agreements with foreign partners.

We discuss the recent volatility in interest rates and the potential impacts of tariffs in more detail below in the next section – so here we will turn to the economic data that came out this week. US factory output rose at a modest pace in March, a month ahead of President Donald Trump’s announcement of more sweeping tariffs that pose at least a short-term risk for manufacturers. The 0.3% increase in manufacturing production followed a revised 1% February gain that was fueled by a surge in motor vehicle assemblies, the Federal Reserve said Wednesday. Excluding autos, factory output also rose 0.3% in March. Overall industrial production fell for the first time in four months. Output at utilities declined on warmer weather, while mining and energy extraction rose. Manufacturing output increased a solid 5.1% in the first quarter — the most since late 2021 — as many customers boosted orders before the brunt of the tariffs hikes went into place. However, that was before Trump announced on April 2 expansive reciprocal tariffs on US trading partners while also raising duties on most Chinese-made goods in multiple steps. In March, higher taxes on imported steel and aluminum went into effect. Other manufacturing headwinds include higher costs for some materials as well as the general uncertainty tied to Trump’s uneven implementation of his trade policy that’s made navigating supply chains more challenging. While a number of businesses have announced plans for production facilities in the US, many are also tabling investment plans until the US reaches bilateral trade deals and there’s more clarity on tax policy.

US retail sales rose substantially in March on a jump in car purchases and other goods such as electronics, suggesting consumers were scrambling to get ahead of tariffs. The value of retail purchases, not adjusted for inflation, increased 1.4%, the most in over two years, Commerce Department data showed Wednesday. Excluding autos, sales climbed 0.5%. The advance suggests consumers were rushing to buy cars before President Donald Trump’s 25% tariffs on finished vehicles, with duties on parts set to take effect no later than May 3. That’s expected to drive up prices by thousands of dollars, though Trump is exploring possible temporary exemptions. While autos saw the biggest advance in two years, the overall gain was broad, with 11 of the report’s 13 categories posting increases. Sales of building materials, sporting goods and electronics climbed as well, which could also indicate consumers were trying to beat tariffs on such goods. Many of those products are made in China and are now facing 145% levies. Several surveys of consumer attitudes have plunged as Trump presses forward with tariffs, which are also causing some measures of inflation expectations to soar and tanking Americans’ perception of their financial situations. With low-income consumers already facing hardships and wealthier ones being hit by a recent stock-market selloff, that’s clouding the outlook for spending and adding to recession fears. The data showed so-called control-group sales — which feed into the government’s calculation of goods spending for gross domestic product — climbed 0.4% in March, suggesting momentum at the end of the first quarter. The measure excludes food services, auto dealers, building materials stores and gasoline stations. While importers are the ones who pay for tariffs, they ultimately pass at least some of those costs on to consumers — even if the pass-through can take a few months. Since retail sales figures aren’t adjusted for inflation, tariffs may distort the numbers going forward, as an advance could merely reflect higher prices rather than greater sales activity. Companies like Ford Motor Co. and Walmart Inc. are trying to help consumers by attempting to offset some of the additional costs, which will eat into margins. Still, executives from luxury group LVMH to brewer Constellation Brands Inc. have generally been downbeat on the outlook and are wary as to how consumers will respond.

Interest Rate Insight and the Fed

The bond market has been jittery to say the least – to us traders have been sending a clear message to the administration – we do not like your policy. The US Ten Year Treasury had been on the rise and hovered just below 4.5% in trading Friday of last week. If traders are expecting a slowdown in the US economy due to the tariffs then that is the opposite of what one would expect. While there is no singular answer to the rise we have some ideas as to why this may be happening. In general when polling traders from the various Treasury desks across institutional firms, they acknowledge there has been a general diversification away from the US dollar and therefore Treasuries. This would imply central banks, sovereign wealth funds and both global and US pension funds were selling US dollar denominated assets – the most liquid being US Treasury securities. As Treasuries are sold, interest rates rise. Second, there are various trades globally put in place using leverage in particular by hedge funds that are currently in the process of being unwound. For example, a popular global trade known as the carry trade took place as follows: borrow money in Japan in yen and buy US assets. The traditional benefit had been that interest rates in Japan were ultra-low and investing in US assets – stocks, bonds and Treasuries – would benefit traders in two ways as they would earn a higher return on the US assets and benefit from a strengthening US dollar. With that not happening in the current environment, that trade is less desirable. Third it is possible with the potential for tax cuts and increase in the debt ceiling, both would provide stimulus to the US economy. Hence the yield curve has been steepening – in other words rates on the long end have risen much faster than short term rates. If trade pressures continue to build and the market continues to press the administration to resolve issues promptly, then that combination would in fact potentially stimulate growth looking ahead to next year. Bond traders are always more forward looking than stock traders who tend to react to headline news. When we say stock traders – that would include computerized stock trading – we see that taking place on particularly volatile days when stock volumes shoot higher.

Helping sentiment in Monday trading, Japan over the weekend said it wasn’t planning to use its US Treasury holdings as a negotiating tool to counter US tariffs. Given they are the largest foreign holder of US Treasuries at over $1 trillion – that was welcome news indeed. Treasuries may have hit the bottom for now amid signs of robust foreign demand and expectations for the Federal Reserve to support US government debt when needed, according to JPMorgan Asset Management. “I feel pretty good that we’re putting in a low in price and a high in yield here,” Bob Michele, the firm’s global head of fixed income, said in a joint interview on Bloomberg Television. “In our conversations with overseas investors, they’re not being shaken out of Treasuries.” Michele’s comments came after Treasuries suffered their biggest slump since 2001 last week, as President Donald Trump’s sweeping global tariffs and unpredictable policy making weakened demand for the longstanding safe haven during financial turmoil, although as we mentioned in our prior week’s newsletter, the Treasury auctions on both the Ten Year and 30 Year securities went very well. The escalating trade tensions add to existing concerns about already-bloated US deficits that could swell further with the Congress debating tax cuts. The 2.4% selloff in US sovereign bonds last week prompted speculation China, the second-largest foreign holder of Treasuries behind Japan, were selling the securities in retaliation to US tariffs, while a heavyweight in Japan’s ruling party ruled out using the debt holdings as a negotiation tool. Michele cited Fed data showing foreign central banks and reserve managers recently boosted their holdings of Treasuries. He also pointed to Boston Fed President Susan Collins’ latest comment that the US central bank “would absolutely be prepared” to help stabilize financial markets if conditions become disorderly. Latest Fed data showed an increase of $3.6 billion in marketable Treasury securities held on behalf of overseas central banks, monetary authorities and international organizations in the week ended April 9, following two weeks of declines.

Federal Reserve Governor Christopher Waller laid out two scenarios for how President Donald Trump’s trade policy could affect the US economy, but said the inflationary impact of either would likely be temporary. Waller called the new tariff policy “one of the biggest shocks to affect the US economy in many decades,” in remarks prepared for an event in St. Louis on Monday. “The future of that policy, as well as its possible effects, is still highly uncertain,” he said. “This makes the outlook also highly uncertain and demands that policymakers remain flexible in considering the wide range of outcomes.” Waller left open the possibility for the Fed to cut its benchmark policy rate under both scenarios he outlined. His view marks a departure from that of several other policymakers who have recently raised concerns that tariffs could have a more persistent impact on inflation. Trump’s tariff announcements have repeatedly changed, whipsawing markets and economists looking to gauge their potential economic effects. On April 2, Trump announced widespread tariffs on US trading partners. He’s since proclaimed a 90-day pause on so-called reciprocal tariffs, while still keeping in place a 10% baseline global duty. China faces tariffs well in excess of 100%. Waller laid out two scenarios for how tariff policy may unfold, and he outlined how the Fed’s policy should respond under each one. In the first, he assumed a “large tariff” scenario where average duties around 25% remain in place for some time. In the second, he described a “smaller tariff” situation where a minimum 10% across-the-board levy on goods from all countries remains in place and other duties are eliminated over time.

Large Tariff Scenario: Under the first scenario, economic growth would likely slow “to a crawl” and unemployment would significantly rise, he said. Inflation would also rise significantly in that situation, he said, potentially reaching a peak of near 5% on an annualized basis in the coming months if businesses quickly and completely pass on the cost of the tariffs. Still, Waller said inflation would return to a more moderate level in 2026, provided Americans’ expectations for price growth remain well-anchored. “Despite the fact that the last surge of inflation beginning in 2021 lasted longer than I and other policymakers initially expected, my best judgment is that higher inflation from tariffs will be temporary,” Waller said. “If this inflation is temporary, I can look through it and determine policy based on the underlying trend.” “If the slowdown is significant and even threatens a recession, then I would expect to favor cutting the FOMC’s policy rate sooner, and to a greater extent than I had previously thought,” he added, referring to the interest-rate setting Federal Open Market Committee. Should the Fed face both a rapidly slowing economy and still elevated inflation, Waller said “the risk of recession would outweigh the risk of escalating inflation.”

Smaller Tariff Scenario: In the second scenario, Waller estimated the effect on inflation would be much smaller, peaking around 3% on an annualized basis. While there would be a negative effect on economic output and employment growth, it would be smaller than in the first scenario, he said. “As a result of these limited effects on inflation and economic activity from steadily diminishing tariffs, I would support a limited monetary policy response,” he said. “Anchored or even lower inflation expectations as the economy slows, combined with the view that smaller tariff effects are temporary, gives the FOMC room to adjust policy as progress on the underlying trend in inflation is revealed in price data.” Should there be a small tariff effect on inflation, rate cuts would “very much” be on the table for the latter half of 2025, he said.

Impactful International News

Euro-area inflation will turn out slower than previously forecast because of higher US tariffs, according to a Bloomberg survey that supported the case for the European Central Bank to cut interest rates this week. Analysts see consumer-price growth averaging 1.9% in 2026 and 2% in 2027 — a downward revision of 0.1 percentage point for each prediction. They also expect the economy to grow 0.8% this year, slightly less than previously, before momentum picks up. While the survey doesn’t take into account Donald Trump’s decision to pause higher tariffs on much of the world, it does shed light on the potential fallout of his policy. In a separate Bloomberg survey, economists predicted the ECB would reduce rates twice more in April and June. “Even with the tariff pause, an April cut continues to make sense,” JPMorgan Chase economist Greg Fuzesi said. “A June cut may also not be too contentious,” though the path beyond that depends on how trade talks with the US evolve, he said. Some policymakers signaled a readiness to act before the start of the week-long quiet period kicked in last week. Bank of France Governor Francois Villeroy de Galhau said there’s still room to cut rates, with Trump’s tariffs strengthening the case to move “soon.” Finland’s Olli Rehn and Lithuania’s Gediminas Simkus also voiced support for another reduction this week. Bundesbank President Joachim Nagel only said the ECB will act “responsibly” on the basis of data and news. Austria’s Robert Holzmann said he didn’t see grounds to cut “for the time being” because of the large uncertainty. Inflation had already been moderating before Trump’s announcement, including in the crucial services sector. An ECB survey among euro-zone companies conducted in the first quarter showed their expectations for price growth in a year’s time cooled slightly, according to a release on Monday. In March, ECB President Christine Lagarde had told EU lawmakers that tariffs would challenge this progress by hitting growth, while lifting inflation during the short term. But the impact on financial markets has played out dramatically. Most significantly, the euro rose to a three-year high on Friday — implying that imports into the currency bloc will become less costly and depress prices. Energy costs have also fallen.

On Thursday the European Central Bank lowered interest rates for the seventh time since last June as global trade tensions threaten to derail the region’s economic recovery. The deposit rate was decreased by a quarter-point to 2.25%, as predicted by almost all analysts polled by Bloomberg. Officials dropped the word “restrictive” from their statement in relation to the monetary-policy stance but stressed the headwinds Europe faces. “The outlook for growth has deteriorated owing to rising trade tensions,” the ECB said Thursday in a statement. “Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions. These factors may further weigh on the economic outlook.” German short-dated bonds pared losses after the ECB tweaked its statement language. The yield on two-year notes was up three basis points at 1.78% after rising to as high as 1.81% earlier. The euro held losses and traded at about $1.1352. Having just weeks ago been pondering a pause in its easing campaign, this month’s announcement by President Donald Trump of sweeping tariffs on the US’s trading partners tilted support within the ECB back toward a further cut. The prospect of another move became more attractive to policymakers as inflation continued to retreat towards the ECB’s 2% goal, and was bolstered by falling energy costs and a plunge in confidence indicators. A surprise move in the euro, meanwhile, has elevated the common currency to a three-year high against the dollar. Investors foresee two or three more reductions in borrowing costs before the year is out. But amid such choppy geopolitical waters, President Christine Lagarde is unlikely to offer any clear signals when she speaks to reporters at 2:45 p.m. in Frankfurt.

Company Events

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