4/11/25: Tariff Turmoil Keeps Markets Volatile Amid Signs of Cooling Inflation

The dominant theme this week was the extraordinary moves and volatility in US equity markets, while the catalyst was the escalating tariff policy rhetoric particularly between the Trump administration and China. Hiding beneath the headlines, economic releases pointed to progress on inflation and continued strength in the labor market.

The surprising magnitude of the sweeping US tariff policy roiled US equity markets as selling continued Monday. Over the weekend, China announced retaliatory tariffs which led the S&P 500 index to open the week down more than -3% lower than the close on Friday. Meanwhile, as the rhetoric escalated between China and the US, other countries sought more amicable compromises. Equity markets reversed course on Wednesday when the Trump administration announced a 90-day pause on all tariffs other than those imposed on China; the S&P 500 subsequently jumped over 8.5%.

Aside from the fiscal fireworks, on Thursday the Consumer Price Index (CPI) indicated more progress on inflation. Headline CPI decreased -0.1% on a month-over-month basis and was lower at 2.4% on a year-over-year basis for March. The -0.1% change from February was the first month-over-month reading below zero since July 2022. Core CPI, which excludes food and energy, was also lower than consensus estimates at 0.1% and 2.8% month-over-month and year-over-year respectively. The Producer Price Index (PPI) data reiterated the easing trend of inflation. US wholesale price inflation, which is gauged by PPI for final demand, fell by -0.4% month-over-month when the consensus estimate called for an uptick of 0.2% in March. On a year-over-year basis, final demand PPI only rose 2.7% while the consensus estimate called for a 3.3% increase. A glaring caveat to the backward-looking inflation data is the uncertainty surrounding the impact of tariff policy. Consumer sentiment also continues to show angst, as the University of Michigan Consumer Sentiment Survey has declined each month in 2025; the first estimate for April was lower this week at 50.8 from 57.0 in March.

The labor market continues to exhibit strength, as indicated by Initial Jobless Claims coming in at 223,000 and Continuing Claims at 1,850,000 for the prior week. According to a Chandler team frequency analysis, weekly Initial Jobless Claims have been less than 250,000, only 14% of the time over the past 50 years, whereas the April 2024-April 2025 52-week moving average is 225,200. The minutes released from the Federal Open Market Committee (FOMC) March meeting also reflect the committee’s sentiment that labor market conditions are broadly balanced.

The US treasury yield curve steepened this week from 41 basis points on Monday to 57 basis points as of writing. Long-term bond yields were higher with the 20-year term reaching 5% and the 30-year over 4.90% at the highs on Friday. The front-end of the curve remained below 4% with the 2-year at 3.92% and 3-year at 3.98% as of writing. The steepening yield curve is in-line with the Chandler team’s base case view which is reflected in portfolio duration strategy accordingly.