April 17th, 2025: Weekly Market Review

1. Federal Reserve Chairman Jerome Powell, in a speech on April 16, 2025, at the Economic Club of Chicago, signaled a cautious approach to monetary policy, emphasizing that the Fed is not inclined to lower interest rates to offset economic disruptions caused by the White House’s trade policies, particularly President Trump’s sweeping tariffs. 

Powell stated, “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” underscoring the Fed’s reluctance to act hastily amid heightened economic uncertainty driven by tariffs, which are expected to raise inflation and slow growth. He highlighted that the current federal funds rate, maintained at 4.25% to 4.5%, reflects a balanced stance to monitor incoming data, as the economy faces risks of both higher inflation – potentially reaching 2.5% to 2.8% per recent PCE data – and rising unemployment, projected to edge up from 4.2% as growth moderates. Powell’s remarks suggest the Fed prioritizes its dual mandate of price stability and maximum employment over mitigating policy-induced volatility, placing responsibility on the administration to navigate the economic fallout of its trade measures.

Powell’s outlook reflects a strategic pause, as the Fed grapples with a complex scenario where tariffs could lead to stagflation – a combination of slowing growth and persistent inflation. He noted that the labor market, while solid with 150,000 monthly job gains, is cooling, and consumer spending is softening, with surveys indicating heightened uncertainty due to trade policy shifts. Inflation, though down from its 2022 peak, remains above the Fed’s 2% target, and Powell warned that tariff-induced price increases could persist if long-term inflation expectations become unanchored. By maintaining policy restraint, the Fed aims to prevent a temporary price surge from becoming entrenched, even as it acknowledges the potential for unemployment to rise as economic activity slows. This wait-and-see approach underscores Powell’s commitment to data-driven decisions, avoiding premature rate cuts that could exacerbate inflation, while carefully assessing the evolving impact of the administration’s trade, immigration, fiscal, and regulatory policies.  In my view, we will see clarity within weeks, not months.  Click onto pictures below to access videos. REF: REUTERS, EconomicOutlookMinutes

 2. During the U.S.-China trade war under the first Trump administration, China strategically allowed its currency, the renminbi (RMB), to weaken in order to offset the economic impact of U.S. tariffs. 

By allowing the yuan to depreciate, Chinese exports became cheaper in dollar terms, helping to maintain their competitiveness despite higher tariffs imposed by the U.S. on Chinese goods. In August 2019, the RMB crossed the psychologically significant threshold of 7 yuan per U.S. dollar for the first time in over a decade. This move was widely seen as a response to newly announced U.S. tariffs and signaled that China was willing to use its currency as a tool in the trade conflict.

China did not officially “devalue” the currency in the traditional sense through direct intervention, but rather allowed market forces to drive the yuan lower within its managed exchange rate system. The People’s Bank of China (PBOC) sets a daily reference rate for the yuan and allows it to trade within a narrow band. By adjusting the midpoint and reducing market intervention, China permitted a gradual depreciation while still maintaining overall control. This subtle form of currency management helped absorb the economic shock of tariffs without triggering massive capital outflows, while also drawing criticism from U.S. policymakers, who accused China of currency manipulation. Ultimately, the weaker yuan acted as a cushion, softening the blow of the trade war on Chinese exporters.  Click onto picture below to access video from CBCnews.  REF: Bloomberg

3. Goldman Sachs warns of up to $800 billion in U.S. investor outflows from Chinese equities in a severe U.S.-China financial decoupling scenario according to Bloomberg, fueled by trade tensions and potential delistings. 

Under incoming SEC Chair Paul Atkins, Chinese companies listed on U.S. exchanges face heightened scrutiny for non-compliance with U.S. GAAP and audit transparency rules under the HFCAA. U.S. institutions hold about $250 billion in Chinese ADRs, like Alibaba, which could face trading challenges in Hong Kong if delisted, potentially causing a 9% valuation drop for ADRs and a 4% decline in the MSCI China Index, worsened by Trump’s 145% tariffs on Chinese imports.

Atkins’ expected tough enforcement targets concerns over national security, opaque disclosures, and Chinese government influence via “golden shares.” Sources suggest he may focus on firms linked to the Chinese Communist Party or using dissident labor, risking delisting of nearly 300 companies worth $1.1 trillion. Delistings could disrupt U.S. investor portfolios and global markets, despite a 2022 audit deal that eased tensions. China’s tighter capital outflow controls add complexity, as investors face challenges balancing regulatory risks with economic ties, amplifying market volatility in a potential financial decoupling. Click onto picture below to access video from MSNBC.  REF: Bloomberg, ForexLive, Video

With the current macro-economic backdrop, below are areas we currently favor:

• Fixed Income – Short-term Corporates (Low-Beta)
• Fixed Income – Corporates High Yield as Opportunistic Allocation (Low-Beta)
• Businesses that contribute to and benefit from AI & Automation (Market-Risk)
• Cloud Computing (Market-Risk)
• Cyber-Security (Market-Risk)
• Biotechnology (Market-Risk)
• Financials (Market-Risk)
• Digital Asset – Bitcoin (Market-Risk/Hedge)

4. World Watch

 4A. ​ Chinese President Xi Jinping is countering U.S. tariffs under President Donald Trump with a global diplomatic push, as reported by the Wall Street Journal.

Facing a 145% tariff on Chinese imports to the U.S., Xi is wooing trade partners in Southeast Asia, Europe, and Latin America to present China as a reliable alternative amid U.S. trade disruptions. His visits to nations like Vietnam and Malaysia have yielded numerous trade agreements, such as 45 deals with Vietnam, aimed at strengthening economic ties and mitigating the impact of U.S. tariffs that threaten to decouple the two economies. Xi’s strategy exploits tensions from Trump’s tariff exemptions for other nations, positioning China as a stable trade partner.

Xi’s charm offensive, however, faces hurdles due to concerns over China’s trade practices and oversupply of cheap goods. European leaders, like Ursula von der Leyen, worry about U.S. tariffs diverting Chinese products to Europe, while Southeast Asian countries like Vietnam balance Chinese investment with U.S. tariff negotiations. Xi must address skepticism about Beijing’s economic dominance and unfulfilled trade promises while promoting China as a free-trade advocate, emphasizing that “trade wars produce no winners.” This delicate balancing act seeks to maintain regional alliances without forcing partners to choose sides in the U.S.-China trade conflict.  Click onto picture below to access video by DWnews.  REF: WSJ

4B. The European Central Bank (ECB) is set to implement its seventh rate cut, driven by a stagnating eurozone economy and diminishing inflation pressures, as reported by Barron’s.

With growth faltering due to an industrial recession and weak consumption, the ECB is prioritizing economic stimulus over inflation concerns, which have eased with headline inflation at 1.9% in March 2025. U.S. tariffs under President Trump have further clouded the eurozone’s outlook, prompting the ECB to cut rates faster to prop up growth. Markets anticipate a 25-basis-point cut to 2.25% on April 17, 2025, with potential for further reductions to counter trade war risks and a possible recession.

In contrast, the U.S. Federal Reserve is maintaining its federal funds rate at 4.25%–4.5%, reflecting a more cautious approach due to persistent inflation above its 2% target (which we challenge) and a resilient economy. The Fed’s pause, signaled in January 2025, stems from strong U.S. growth, low unemployment, and concerns over tariff-induced inflation. While the ECB’s aggressive easing aims to address immediate economic weakness, the Fed’s restraint highlights divergent economic conditions, with the U.S. facing less urgency to cut rates. This policy gap is pressuring the euro and widening the interest rate differential between the two regions.  REF: BARRON’S, TradingEconomics

4C. An updated snapshot of the current global state of economy

According to TradingEconomics as of 4/15/2025.  REF: TradingEconomics

• The annual inflation rate in the US eased for a second consecutive month to 2.4% in March 2025, the lowest since September, down from 2.8% in February, and below forecasts of 2.6%. 
• China’s consumer prices fell by 0.1% year-on-year in March 2025, missing market expectations of a 0.1% increase and marking the second consecutive month of drop, as the ongoing trade dispute with the U.S. threatens to exert further downward pressure on prices.
• The Reserve Bank of India (RBI) slashed its key repo rate by 25bps to 6% at its April meeting, marking back-to-back cuts of equal amount and aligning with market expectations.
• Unemployment Rate in India decreased to 7.90 percent in February from 8.20 percent in January of 2025.

5. Quant & Technical Corner – a selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment.

5A. Most recent read on the Fear & Greed Index with data as of 4/15/2025 – 8:00PM-ET is 18 (Extreme Fear).  Last week’s data was 12 (Fear) (1-100).  CNNMoney’s Fear & Greed index looks at 7 indicators (Stock Price Momentum, Stock Price Strength, Stock Price Breadth, Put and Call Options, Junk Bond Demand, Market Volatility, and Safe Haven Demand).  Keep in mind this is a contrarian indicator!  REF: Fear&Greed via CNNMoney

5B. St. Louis Fed Financial Stress Index’s (STLFSI4) most recent read is at 0.0944 as of April 10, 2025.  Previous week’s data was -0.6316.  A big spike up from previous readings reflecting the turmoil in the banking sector back in 2023.  This weekly index is not seasonally adjusted.  The STLFSI4 measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.  REF: St. Louis Fed

5C. University of Michigan, University of Michigan: Consumer Sentiment for February [UMCSENT] at 64.7, retrieved from FRED, Federal Reserve Bank of St. Louis, March 28, 2025.  Back in June 2022, Consumer Sentiment hit a low point going back to April 1980.  REF: UofM

5D. The Chicago Fed National Activity Index (CFNAI) increased to +0.18 in February from –0.08 in January. Three of the four broad categories of indicators used to construct the index increased from January, and two categories made positive contributions in February. The index’s three-month moving average, CFNAI-MA3, increased to +0.15 in February from +0.07 in January. REF: ChicagoFed, February’s Report

5E. (3/20/2025) The Conference Board Leading Economic Index (LEI) for the US declined by 0.3% in February 2025 to 101.1 (2016=100), after a 0.2% decline (revised from –0.3%) in January. Overall, the LEI fell by 1.0% in the six-month period ending February 2025, less than half of its rate of decline of –2.1% over the previous six months (February–August 2024). The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle. The ten components of The Conference Board Leading Economic Index® for the U.S. include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.  REF: ConferenceBoard, LEI Report for February  (Released on 3/29/2025)

We have experienced a “rolling recession” since June 2022 and are only now emerging from it. However, authorities are not labeling it a recession due to high employment data. 

5F. Probability of U.S. falling into Recession within 3 to 4 months is currently at 46.74% (with data as of 04/14/2025 – Next Report 04/28/2025) according to RecessionAlert Research.  Last release’s data was at 48.26%.  This report is updated every two weeks. REF: RecessionAlertResearch

5G. Yield Curve as of 4/15/2025 is showing Normal.  Spread on the 10-yr Treasury Yield (4.32%) minus yield on the 2-yr Treasury Yield (3.81%) is currently at 51bps.  REF: Stockcharts   The yield curve—specifically, the spread between the interest rates on the ten-year Treasury note and the three-month Treasury bill—is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead.  REF: NYFED

5H. Recent Yields in 10-Year Government Bonds.  REF: Source is from Bloomberg.com, dated 4/15/2025, rates shown below are as of 4/15/2025, subject to change.

The 10-Year US Treasury Yield… The 10-Year Yield is indirectly related to inflation. I expect the 10-Year Yield to drop further as dis-inflation kicks in.  REF: StockCharts1, StockCharts2

10-Year Real Interest Rate at 1.66841% as of 4/10/25.  Last month’s data was 1.86151%.  REF: REAINTRATREARAT10Y

ICE BofA US High Yield Index Option-Adjusted Spread (BAMLH0A0HYM2) currently at 4.14 as of April 15, 2025.  This is a key indicator of market sentiment, particularly regarding risk and economic health.  At its core, the spread reflects the extra return investors demand to hold riskier corporate debt over safer government securities. High-yield bonds are issued by companies with lower credit ratings (below investment grade, like BB or lower), meaning they carry a higher chance of default. The spread compensates for this risk. When the spread is narrow—say, around 2.5% to 3%, as seen recently—it suggests investors are confident, willing to accept less extra yield because they perceive lower default risk or a strong economy. Narrow spreads often align with bullish markets, where cash is flowing, growth is steady, and fear is low.   REF: FRED-BAMLH0A0HYM2

5I. (4/15/2025) Today’s National Average 30-Year Fixed Mortgage Rate is 6.88% (All Time High was 8.03% on 10/19/23).   Last week’s data was 6.82%.  This rate is the average 30-year fixed mortgage rates from several different surveys including Mortgage News Daily (daily index), Freddie Mac (weekly survey), Mortgage Bankers Association (weekly survey) and FHFA (monthly survey).  REF: MortgageNewsDaily, Today’s Average Rate

The recent spike in the 30-year fixed-rate jumbo mortgage to 6.88%, compared to Freddie Mac’s rate at 6.61% and the Mortgage Bankers Association (MBA) rate at 6.81%, highlights key differences in the mortgage market. Jumbo mortgages, which exceed the conforming loan limits set by government agencies like Freddie Mac, typically carry higher interest rates because they are riskier for lenders. These loans are not backed by government entities, which increases the risk for lenders and, consequently, leads to higher rates. In contrast, Freddie Mac and MBA provide averages for conforming loans, which meet federal guidelines and have lower risk due to government backing, keeping their rates lower.

(4/15/25) Housing Affordability Index for Feb = 102.2 // Jan = 100.7 // Dec = 100.7 // Nov = 99 // Oct = 102.3 // Sep = 105.5 // Aug = 98.6. Data provided by Yardeni Research.  REF: Yardeni

5J. Velocity of M2 Money Stock (M2V) with current read at 1.387 as of (Q4-2024 updated 3/27/2025).   Previous quarter’s data was 1.390.  The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.  Current Money Stock (M2) report can be viewed in the reference link.   REF: St.LouisFed-M2V

M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1. Board of Governors of the Federal Reserve System (US), M2 [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; Updated on March 25, 2025.  REF: St.LouisFed-M2

Money Supply M0 in the United States decreased to 5,614,000 USD Million in February from 5,614,200 USD Million in January of 2025. Money Supply M0 in the United States averaged 1,177,483.25 USD Million from 1959 until 2025, reaching an all-time high of 6,413,100.00 USD Million in December of 2021 and a record low of 48,400.00 USD Million in February of 1961..   REF: TradingEconomics, M0

5K. In March, the Consumer Price Index for All Urban Consumers fell 0.1 percent, seasonally adjusted, and rose 2.4 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.1 percent in March (SA); up 2.8 percent over the year (NSA). April 2025 CPI data are scheduled to be released on May 13, 2025, at 8:30AM-ET.  REF: BLS, BLS.GOV

 5L. Technical Analysis of the S&P500 Index.  Click onto reference links below for images.

• Short-term Chart: Trend Bearish to Bottoming on 4/15/2025 – REF: Short-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Medium-term Chart: Trend Bullish to Falling on 4/15/2025 – REF: Medium-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Market Timing Indicators – S&P500 Index as of 4/15/2025 – REF: S&P500 Charts (7 of them) by Joanne Klein’s Top 7 (Click Here to Access Updated Charts)

• A well-defined uptrend channel shown in green with S&P500 broke away from the uptrend.  REF: Stockcharts

• S&P500 and CBOE Volatility Index (VIX) as of 4/15/2025.  REF: FRED, Today’s Print

5M. Most recent read on the Crypto Fear & Greed Index with data as of 4/15/2025 is 29 (Fear).  Last week’s data was 15 (Extreme Fear) (1-100).  Fear & Greed Index – A Contrarian Data.  The crypto market behavior is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With the Crypto Fear and Greed Index, the data try to help save investors from their own emotional overreactions. There are two simple assumptions:

• Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
• When Investors are getting too greedy, that means the market is due for a correction.

Therefore, the program for this index analyzes the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”.  REF: Coinmarketcap.com, Today’sReading

Bitcoin – 10-Year & 2-Year Charts. REF: Stockcharts10Y, Stockcharts2Y