The Week in Charts (4/6/25)

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The most important charts and themes in markets and investing…

1) The Tariff Tantrum

Last Wednesday after the close, President Trump announced far-reaching new tariffs on nearly all US trading partners, with a 10% baseline tax on imports from all countries.

The market reaction was swift:

• The S&P 500 fell 10.5% on Thursday-Friday, the 5th biggest 2-day decline since 1950. What has happened in the past following the biggest 2-day declines? Stocks were substantially higher over the next 1, 3, 5 years every time.

• The S&P 500 is now down 13.7% in the first 64 trading days of 2025, the 6th worst start to a year in history.

• Including dividends, the S&P 500 is down 13.4% thus far in 2025. Since 1990, only two years have had a worse start: 2001 and 2020. Last year at this time the S&P 500 was up 9.7% on the year.

• From its peak on February 19, the S&P 500 has declined over 17%, the biggest drawdown since 2022. This is the 30th correction >5% and 10th correction >10% since the March 2009 low.

2) Historic Spike in Volatility

The $VIX increased 109% last week, the 3rd biggest weekly spike ever.

What has happened in the past following the biggest $VIX spikes?

Stocks have tended to bounce back with above-average returns over the next 3-5 years.

High volatility = opportunity for long-term investors.

The $VIX ended the week at 45.3, among the highest weekly closes in history.

What has happened in the past following the highest weekly $VIX levels?

Stocks rallied 100% of the time over the next 1, 2, 3, 4, 5 years with returns far above historical averages.

3) Crude Oil Declines and Rising Recession Fears

Crude Oil fell 13.6% on Thursday-Friday of last week, one of the biggest 2-day declines in history.

In the past, big short-term declines have often coincided with recessions (see 1990-91, 2020, 2008-09) as investors anticipated a collapse in demand.

The three exceptions in the table below: 1986, 2021, and 2022.

Is a recession coming?

It’s too early to tell, but the Atlanta Fed continues to forecast a real GDP decline in Q1 (-2.8% annualized).

4) Flight to Safety

Investors have once again flocked to US Treasuries as the ultimate safe haven asset class, with the longest duration bond ETFs ($ZROZ/$TLT) leading the way this year (+8.4%/+7.4%).

The 10-Year Treasury yield, which was above 4.8% as recently as January, crossed below 4% last week.

The worst performers in the bond market this year are credit sensitive issues, including leveraged loans ($BKLN ETF -1.9% YTD) and High Yield Bonds ($HYG ETF -1.0% YTD).

US High Yield credit spreads widened 103 bps in the last 2 trading days of last week, the biggest 2-day widening since March 2020. But at 445 bps, spreads remain below their historical average (527 bps) and are far from pricing in a recession or a wave of defaults.

The last 3 recessions in the US all saw high yield spreads move over 1,000 bps at some point. We’re not close to pricing in that scenario today.

5) Here Comes the Fed Put?

3 months ago, the market was pricing in 1 Fed rate cut this year.

2 months ago, the market was pricing in 2 Fed rate cuts this year.

1 month ago, the market was pricing in 3 Fed rate cuts this year.

And today, the market is pricing in 4 Fed rate cuts this year.

The more the stock market goes down, the more rate cuts will be expected.

But what about inflation?

Truflation’s real-time US inflation gauge has moved down to 1.2%, the lowest level since November 2020. If this holds, the Fed will have plenty of ammunition to cut.

Every week I do a video breaking down the most important charts and themes in markets and investing. Subscribe to our YouTube channel HERE for the latest content.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosures here.

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