Weekly Market Update: April 7, 2025

Inflation remains sticky. This was evident in the February personal income and spending report from the Labor Department. The Personal Consumption Expenditures (PCE) Price Index, the gauge of inflation most closely tracked by the Federal Reserve, came in stronger than expected. Specifically, the PCE and the core PCE, which excludes the more-volatile food and energy components, increased 0.3% and 0.4%, respectively, on a month-to-month basis. From a one-year perspective, the PCE and core PCE rose 2.5% and 2.8%, respectively. Both core PCE readings were above forecast, indicating that the Federal Reserve still has more work to do to rein in inflation. 

The trade policies emanating from the White House may make the Federal Reserve’s task more difficult. There is a sense on Wall Street that the Trump Administration’s tariffs on global trade partners will lead to a near-term spike in the pace of price growth. This backdrop could put more pressure on consumers, who are showing signs of fatigue as inflation continues to reduce their spending power. The February personal income and spending report showed more people are saving money than in prior years, owing to concerns the U.S. economy is slowing. Recent data indicated a slowdown in both manufacturing and residential construction activities. 

Meanwhile, first-quarter earnings season is about to commence. Wall Street will be watching the results to see if there are signs of stress in the domestic economy amid the uncertain fiscal and monetary policy environment. We think close attention will be paid to what corporate leaders are saying about the impact of tariffs on their businesses. It should be noted that heading into the reporting season more S&P 500 companies had revised their earnings guidance downward, than upward. 

Conclusion: As the calendar turned to April, volatility in the equity markets remained heightened. This is not surprising, as Wall Street faces a wall of worry, including unsettling fiscal and monetary policies, signs of a slowing economy, stubbornly high inflation, and a possible artificial intelligence (AI) bubble. These fears have pushed the price of gold, which is viewed as a hedge against both inflation and slowing growth, to record levels. From a portfolio perspective, we continue to recommend a mixture of high-quality stocks and cash-equivalent securities.

Source: ValueLine.com