April 2025 Market Recap

We are excited to share the latest market insights from the Goldman Sachs Wealth Management Investment Strategy Group (ISG). 

Markets were highly volatile in April following the announcement of reciprocal tariffs by President Trump. The VIX, a measure of stock market volatility, briefly spiked to 60, while both equities and bonds sold off sharply and the US dollar depreciated against major currencies.

Here’s a recap on what happened in the market and economy.

The markets: volatile as policy uncertainty takes a toll

The S&P 500 entered a bear market on April 7 when it was down 21.4% from its peak on February 19 on an intra-day basis. Not much later, President Trump declared a 90-day pause on the implementation of reciprocal tariffs. That move was followed by tariff exemptions on certain goods, including smartphones and other consumer electronics containing semiconductors.

The market welcomed these steps and had largely recovered by the end of the month with the S&P 500 returning -0.7%. Outside the US, markets were also volatile, but MSCI EAFE (index including companies from Europe, Australasia, and Far East) and MSCI EM (index including companies from 24 emerging market countries) ultimately produced positive returns of 4.7% and 1.3%, respectively.

ISG notes that recent trade deals — notably a temporary reduction on Chinese imports from 145% to 30% announced on May 12 — has supported a further equity market recovery in the first half of May. These deals have lowered the US effective tariff rate to the low-end of ISG’s forecasted range of 15% - 20%. While uncertainty remains, ISG is more confident in the reduction of Liberation Day tariff rates (announced April 2). 

The economy: mixed results

The US economy has held up well so far, but the data is becoming more mixed.

Consumer, manufacturing, and services surveys have declined sharply, particularly the forward-looking components. In contrast, there are few signs of weakness in the labor market with 177,000 jobs added in April and the unemployment rate remaining at a low level.

First quarter GDP growth, however, contracted 0.3% when compared to the same quarter last year. The result was largely driven by heavy front-loading of imports in anticipation of higher tariffs, while underlying private-sector demand was more resilient.

Still, ISG expects that higher tariffs, elevated policy uncertainty, and tighter financial conditions will lead to weaker economic growth and higher inflation in the remainder of 2025. That said, modestly lower effective tariff rates, combined with the meaningful easing in financial conditions over the last month, has on balance restored more confidence in the trajectory for the US economy.  

While the risk of recession over the next 12 months remains elevated — above the unconditional probability of 18% since WWII and 13% since 1980 — a US recession is not ISG’s base case. ISG notes that on May 13 following the US-China trade deal, Goldman Sachs Global Investment Research lowered their 12-month recession probability to 35% (vs. 45% previously).

The Federal Open Market Committee (FOMC) members have stressed patience while they wait to see the impact of tariffs. ISG expects the fed funds rate to remain on hold until September before delivering three consecutive 25 basis point (0.25%) cuts to the end of the year.

Looking ahead

ISG remains focused on US tariff policy, trade negotiations with major trading partners, as well as a reconciliation bill that is slowly making its way through the US Congress.