April Shock, May Uncertainty: Navigating Markets Amid Tariffs and Technical Tension
April 2025 Market Recap and Outlook for May
April 2025 was a turbulent month marked by historic volatility and significant declines, largely driven by President Donald Trump’s aggressive trade policies. The introduction of sweeping tariffs on April 2—dubbed “Liberation Day”—triggered a sharp sell-off, with global markets suffering their steepest decline since the 2020 COVID crash. The S&P 500 dropped 6.65% on April 3 and lost 10% over April 3–4, while the Nasdaq Composite fell 11%, entering bear market territory. The Dow Jones Industrial Average shed over 4,000 points (–9.48%) in just two days, marking the worst two-day loss in history.
A recovery began after April 9, when Trump announced a 90-day pause on most tariffs (except those on China), igniting a historic rally. The Dow surged 3,000 points, the S&P 500 jumped 12%, and the Nasdaq rallied 12%—the S&P’s best single-day gain since 2008.
Despite the market rebound, Q1 U.S. GDP contracted at a –0.3% annual rate, below expectations. Consumer confidence fell amid fears of tariff-driven inflation. Corporate earnings expectations for the S&P 500, initially projected at 9% growth, were revised lower. The S&P’s price-to-earnings ratio dropped 10% year-over-year. Yet, as of May 1, the S&P 500 managed to break through another key technical resistance—its 50-day moving average at 5,592. Fundamentals down, market up. Confused?
It appears the market may be echoing the view of Peter Navarro, senior counselor to the president, who argued that the weak GDP number was mainly about one thing: imports. With businesses rushing to stock up on equipment ahead of tariff implementation, investment—especially in IT and computer equipment—spiked. According to Navarro, if imports were excluded, Q1 GDP would have shown an annualized growth rate of 4.5%.
However, others argue the contraction reflects a front-loading of demand as businesses and consumers tried to stay ahead of the tariff timeline. This pull-forward effect may set the stage for a deeper demand cliff in Q2—a far more troubling sign for the broader economic cycle.
Technical Perspective
Technically, the recent rebound is showing signs of momentum, as the S&P 500 broke above its 50-day simple moving average on May 1, powered by strong earnings from MSFT and META. The Zweig and Lowry breadth thrusts were triggered, suggesting bullish signals. However, the failure of the Whaley thrust points to weaker momentum and narrower stock participation—potentially limiting both the strength and duration of the rally. Zooming out, the monthly chart shows the MACD line has crossed below the signal line, indicating weakening long-term momentum—a pattern last seen during the 2022 bear market. The market now appears to be challenging another key level: the 200-day simple moving average. In the previous bear cycle, the index briefly recovered above the 200-day SMA, only to fail three weeks later. Currently, a weekly death cross is forming—reminding us that downside pressure remains and caution is still warranted.
Key Influences for May 2025
1. Trade Policy and Tariffs
The 90-day tariff pause (excluding China), announced on April 9, helped calm markets, but uncertainty looms as the July expiration approaches. Tariffs on Chinese imports remain elevated at 145%. Any breakthrough or escalation in U.S.-China negotiations could drive sharp market moves. If tariffs are reimposed or new deals struck, volatility is likely to spike.
2. Economic Indicators
U.S. GDP contracted –0.3% in Q1, fueling recession concerns. However, consumer spending—which makes up two-thirds of the U.S. economy—is expected to grow over 2% in 2025, offering potential support for markets. Inflation remains sticky, pressuring corporate margins. The Fed is now expected to cut rates only twice in 2025—fewer than previously priced in. Elevated bond yields may continue to weigh on equity valuations.
3. Market Valuations and Technicals
The S&P 500’s price-to-earnings ratio, now around 21.7x, is down 10% from last year but still high—sitting in the 93rd historical percentile. With valuations stretched, there’s little margin for error if earnings disappoint. Market breadth remains weak: only 23% of S&P 500 stocks were above their 200-day moving average in early April, with modest improvement by month-end. The 200-day SMA around 5,745 is a critical resistance level to watch.
Summary
May 2025 is likely to be another volatile month. While earnings momentum and consumer spending offer support, elevated valuations and unresolved trade tensions continue to cap upside potential. Trump’s ongoing trade negotiations—especially with China—remain the biggest wildcard, capable of driving either a breakout rally or another leg lower.