April was one of the most up-and-down months we’ve seen in the markets as investors reacted to new trade tariff announcements. Even though the S&P 500 (a measure of the 500 largest U.S. companies) dropped as much as 12% during the month, it bounced back and ended almost where it started, down less than one percent. Recent reports also showed that the economy got a bit smaller in the first quarter as companies rushed to buy foreign goods before new tariffs took effect. While bonds (loans to companies or governments) and international stocks also went up and down a lot, both helped balance out investment portfolios. This reminds us again why it’s so important to stay invested and spread your money across different types of investments during uncertain times.
Key Market and Economic Drivers
- The S&P 500 fell 0.8% in April, the Dow Jones Industrial Average fell 3.2%, and the Nasdaq rose 0.9%. Since January, the S&P 500 has declined 5.3%, the Dow 4.4%, and the Nasdaq 9.7%.
- The Bloomberg U.S. Aggregate Bond index (which tracks U.S. bonds) gained 0.4% in April and is up 3.2% this year. The 10-year Treasury yield (which affects mortgage rates) ended the month at 4.16%, but moved between 3.99% and 4.49% during the month.
- The U.S. dollar index fell 4.5% to end at 99.5, its lowest point in about three years.
- Bitcoin fell to $77,052 during the month, but recovered to $94,581 by month-end.
- The Consumer Price Index (which measures inflation) rose 2.4% compared to last year, which was lower than expected and the smallest increase since September.
- Retail sales fell 0.9%, including a 1.9% drop in online shopping. The household savings rate increased slightly to 4.6% but remains below the historical average of 6.2%.
- The economy shrank slightly with GDP (total economic output) falling 0.3% in the first quarter, the first decline since early 2022. This was mainly because companies imported more goods than usual.
Lessons on staying invested after a volatile month
April showed us once again why we need to be prepared for market uncertainty. The month began when the White House announced new tariffs (fees on imported goods) on April 2 affecting nearly all trading partners. These tariffs were much higher than investors expected, creating fears about rising prices, slower global growth, and possible trade conflicts. Stock markets responded with the biggest drops we’ve seen since COVID-19.
Stock market volatility jumped in April
Just days later, the administration decided to pause most of these tariffs for 90 days, which helped the market recover. Additional exceptions on tariffs with China, especially for technology products, further calmed investors’ concerns.
Despite big swings throughout the month, major market indexes ended with only small changes. Portfolios with a mix of investments also benefited from bonds and international stocks doing well. So, while the S&P 500 is down about 4.9% for the year (including dividends), many balanced portfolios are close to breaking even.
The chart shows that the VIX index (which measures how much investors expect prices to change in the near future) briefly went above 50 for the first time since COVID-19. However, many of the largest drops during the month were followed by big rebounds. This reminds us that market movements go both ways, and trying to jump in and out of the market can often backfire.
While markets have calmed down recently, uncertainty remains and many of the issues that caused April’s ups and downs will continue to be important. The situation around trade policy is still developing, though the 90-day pause suggests that the worst outcomes may be less likely. Investors should expect that news about tariffs could continue to cause market swings in the coming months, even as markets adjust to the new trade situation.
GDP declined in the first quarter
One of the main worries for investors is whether tariffs will cause higher prices and slower growth. The latest economic reports show that the economy shrank slightly in the first quarter, with GDP declining by 0.3%, the first decrease since early 2022. This happened almost entirely because businesses rushed to import goods before tariffs took effect, building up their inventories. Consumer spending slowed but still remained positive. Remember that these numbers are just the first estimate and could be revised later.
As the chart shows, consumer spending has been a major driver of economic growth in recent years. Recent surveys indicate that consumers expect prices to rise quickly both in the coming year and longer term, resulting in very low consumer confidence. While this hasn’t yet significantly affected consumer spending or inflation, it could become more important in the coming months.
The mixed signals about economic growth and inflation also make things harder for the Federal Reserve (the central bank that sets interest rates). Not only does the Fed face difficult decisions about interest rates in the coming months, but its independence was briefly questioned by the White House, causing more market uncertainty. Currently, markets expect the Fed to lower interest rates about four times this year, possibly starting in July.
These events also caused unusual movements in the bond market, though bonds ended the month close to where they started. The 10-year Treasury yield finished at 4.16%, while corporate bond yields edged higher. Some investors worried about money leaving U.S. investments, especially with the U.S. dollar falling to its lowest levels in several years.
Staying invested has historically been rewarded
Despite recent challenges, one investment principle remains clear: staying invested during periods of market ups and downs has historically been an important way to achieve long-term financial success. The chart shows the potential cost of trying to time the market by selling after every 2% drop (or worse). Since good and bad days often happen unpredictably, leaving the market after bad days, even briefly, can hurt your returns. The temptation to try timing the market may be even stronger in today’s environment.
While increased market swings can be worrying, these are the times when focusing on your financial plan, how your investments are structured, and potential opportunities becomes most important. Market volatility often creates attractive prices across many types of investments, offering potential opportunities for those looking to better balance their portfolios. The S&P 500, for example, has become more reasonably priced this year based on company earnings.
The bottom line? April’s market swings remind us that short-term market movements can happen without warning. History shows again and again that disciplined investors who focus on their long-term financial plans will be better positioned to reach their goals.
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