As the final touches were being made to the monthly newsletter, it all began to feel outdated with the events unfolding in April. The initial commentary addressed tariffs, the report, and their potential short-term market impact. While a tariff announcement had been expected, few analysts and economists had anticipated what the chart below ultimately revealed.
(Source: Tax Foundation)
“Unexpected” doesn’t even begin to capture it. As the financial world absorbed the scope of the new tariffs and their possible consequences, investor panic quickly took hold. Over the next two days, markets dropped more than 10%, and the volatility index (VIX) surged to levels not seen since the depths of COVID or even the 2008 crisis.
While most of the attention was on equities, it was likely the bond market that truly forced the administration’s hand. In typical flight-to-safety fashion, Treasury yields initially dropped as stocks sold off. But by the following week, rates abruptly reversed course and began climbing—signaling widespread bond selling. This wasn’t just retail investors—it pointed to major institutional players and foreign holders like China and Japan, the largest foreign owners of U.S. debt.
A disorderly bond market can trigger deeper fears than even a stock selloff, and we believe that’s what ultimately prompted the administration to announce a 90-day pause on all new tariffs—except those targeting China. The market responded immediately, surging 10% on the news.
What’s Next?
The ride didn’t end with the tariff pause announcement. Markets continued to swing wildly through the week, with sharp intraday moves keeping investors on edge. While many are eager for a moment to catch their breath, market clarity remains elusive.
Tariffs on China—long the focal point of these tensions—are still firmly in place, and China has responded with retaliatory measures on U.S. imports. Although some relief was granted for certain goods, particularly consumer electronics, much remains unresolved. Meanwhile, the clock is ticking for the U.S. to negotiate terms with other countries, leaving a tight window for what could be complex and high-stakes talks. Amid all the noise, one of the more productive strategies may be to zoom out. Historically, a VIX reading above 50 is a rare event and has often marked strong entry points for long-term investors. The chart
(Source: Carson Insights)
Excluding the 2008 financial crisis, the market was positive 12 months after each of the other six instances, with an average return of 20%. While past performance doesn’t guarantee future results, periods of peak market fear have historically aligned with short-term lows and strong rebounds.
Investor Sentiment
In highly volatile markets, one of the key indicators to watch is investor sentiment—specifically, how bearish investors have become. Historically, extreme pessimism can serve as a contrarian signal, suggesting that markets may be oversold. Below is Bank of America’s April Global Fund Manager Survey, which shows sentiment hitting its fifth most bearish level in the survey’s 25-year history.
(Source: BofA Global Fund Manager Survey)
Although historically, elevated bearish sentiment has often signaled attractive entry points for U.S. equity investors, the uncertainty surrounding the new tariff policy is likely to keep both fund managers and retail investors more cautious than usual in the near term.
Articles We’re Reading
Trump exploring exemptions to tariffs on imported vehicles and parts (Bloomberg)
Nvidia investing $500B over next four years to boost US manufacturing capability (CNBC)
Retail investors continue to buy into leveraged ETFs despite volatile (Bloomberg)
OPEC lowers oil-demand forecasts on higher uncertainties from trade dynamics (CNBC)
Market Snapshot
For the Month Ending 3/31/2025 (Cumulative Returns)1
1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.
Did You Know?
With Rory McIlroy’s victory at the 2025 Masters, another international player claims the green jacket. Since 2000, the S&P 500 has averaged a return of 6.8% in years when an American wins the Masters, compared to an impressive 11.2% average return when an international player takes the title. Maybe it’s a stretch, but here’s hoping this trend brings some optimism to the markets!
While this is a fun coincidence, there’s no evidence of causation—just an interesting bit of trivia connecting golf’s biggest stage to Wall Street’s performance.
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
