Apr 05, 2025

I recently learned from financial experts about the slashing of S&P 500 targets by analysts due to concerns beyond tariffs. Capital Economics reduced its forecast for 2025 from 7,000 to 5,500, citing faltering AI trade. Other analysts like UBS and RBC also trimmed their expected targets. The downgrades come as aggregate earnings per share are trimmed, with JPMorgan warning of a 60% chance of a global recession if tariffs are maintained. Former ‘Bond King’ Bill Gross advised against buying the dip in the market turmoil caused by tariffs.

The market response to the tariffs has been negative, with U.S. stock-index futures sinking and benchmark Treasury yields sliding. The dollar index is rallying, while oil prices dive and gold trades around $3,090 an ounce. China’s announcement of 34% tariffs on all U.S. imports and the upcoming release of the March nonfarm payrolls report are also adding to the market uncertainty. Despite the market turmoil, retail investors have shown resilience by buying the dip in historic levels.

Furthermore, it was highlighted that many nations rely on external demand, especially from the U.S., rather than providing full employment through domestic policies. This reliance leads to a shortfall of income in the U.S., requiring the country to consistently sell assets to cover the gap. The current challenge lies in managing this situation effectively to prevent underemployment, unsustainable borrowing, and deindustrialization. Policymakers are urged to address weak foreign demand by maintaining a hot macro stance, sustainable financial inflows, and protecting domestic manufacturing from foreign competition.

In terms of recent tariffs, it was noted that the U.S. administration’s approach to trade, particularly the focus on bilateral trade deficits, is flawed. The assumption that bilateral balances reflect a country’s overall contribution to global demand or supply is misleading. The recent example of tariffs imposed based on bilateral balances, such as the case with Mexico, demonstrates the shortcomings of this approach. Overall, the trade landscape remains uncertain, with the global economy facing challenges due to ongoing trade tensions and trade policies.

In economic news, the U.S. economy added 228,000 jobs in March, surpassing expectations. However, the unemployment rate slightly increased to 4.2%, with 48,000 jobs being removed from the January and February reports. Government jobs saw an increase in March, particularly due to state and local hiring, while the Federal government lost only 4,000 jobs. It was noted that the thousands of Department of General Employment (DOGE) cuts have not been fully recorded yet.

Stay Well!