Hedgie's Market Edge - April 28, 2025

Hey everyone, Hedgie here! 👋 Welcome to this week's market breakdown. I'm going to walk you through everything that happened in the markets this week and explain what it means for regular investors like you. This was a week of relief as trade tensions eased and markets staged a significant rebound after weeks of volatility.

All three major indices finished the week higher, with the S&P 500 up 4.6%, the Dow up 2.5%, and the Nasdaq surging 6.7%. As of Sunday evening when this newsletter was prepared, stock futures were pointing to a negative open on Monday (S&P 500 futures -0.50%, Nasdaq futures -0.66%, Dow futures -0.37%) as traders prepare for a busy week of tech earnings and economic data.

Note: This newsletter was prepared on Sunday evening for Monday morning release. Market conditions may have changed by the time you're reading this.

THE TRADE TENSION TRUCE: WHAT HAPPENED THIS WEEK

This week we saw several key developments that point to the peak in trade uncertainty and market volatility being behind us:

Trade Rhetoric Softens

Following initial concerns that the historically high tariff rates announced on April 2 would persist, there have been a series of positive developments showing that the U.S. administration is softening its stance on trade. The 90-day pause on the new tariffs was a significant first step, but the tit-for-tat tariff hikes with China would still result in the average rate on imported goods jumping to more than 20% from around 2.5% last year.

However, media reports mentioned last week that the administration is considering cutting its tariffs on Chinese imports in an effort to de-escalate tensions. And China is said to be considering exempting some U.S. goods from tariffs as costs increase. Separately, Treasury Secretary Bessent said that the U.S.-South Korea bilateral trade discussions were "very successful" and may result in an agreement soon, while also mentioning that the U.S. is making "significant progress" toward a trade deal with India.

As the last couple of weeks showcase, the narrative and headlines on trade can change faster than the weather changes in springtime. Until an actual deal with a major country is made, uncertainty will linger, but with the U.S. administration looking for a path to reduce tariffs, the peak in trade uncertainty and market volatility may be behind us.

Fed Independence Concerns Fade

After expressing his frustration that the Fed hasn't moved to lower interest rates further, President Trump said last week that he has "no intention of firing" Fed Chair Powell. The threats to the Fed independence, the bedrock of a credible monetary policy, was a contributing factor to the brief rise in Treasury yields. With these worries fading, the 10-year yield has now returned back to near the middle of the 4.0%-4.5% range that many analysts expect to persist this year.

The bond market is now pricing in three rate cuts in 2025, as economic growth is expected to slow but not fall into a recession. The Fed currently remains in wait-and-see mode and may stay on pause when it meets again on May 7. But by June or July, policymakers will likely have more clarity on the impact of tariffs. Signs that growth and the labor market will be cooling will likely lead the Fed to cut rates two-to-three times this year.

Tech-Driven Rally

The NASDAQ's weekly outperformance relative to other major U.S. indexes stemmed from strong quarterly results from major technology companies and the tech sector's overall strength during the week. Tech stocks in the S&P 500 surged nearly 8% on average for the week; in contrast, the consumer staples sector was down more than 1%.

The earnings growth rate for S&P 500 companies improved as earnings season entered its busiest period. First-quarter net income was expected to rise an average of 10.1% over last year's first quarter, based on reports already released as of Friday and analyst forecasts for companies that haven't yet reported, according to FactSet. A week earlier, the projected earnings growth rate was 7.0%.

According to data from FactSet, 73% of the companies that had reported first-quarter results through Friday morning had beaten consensus earnings expectations. This strong performance helped drive the market rebound, particularly in the technology sector.