“Hope for the best, but prepare for the worst.” – unknown
April was quite the volatile month for investors. The US equity indexes we follow were all negative for the month, with the S&P 500 holding up the best and the Small-Cap S&P 600 performing the worst. International equities, on the other hand, were positive for the month as the MSCI EAFE gained more than 4%. Bonds we positive as interest rates glided lower on recession fears. Commodities were down almost 7% for the month, and the US Dollar Index fell just over 4%.

All data as of 05/01/2025, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company]
Meanwhile, in the first quarter, the US gross domestic product (GDP) printed a slightly negative number, contracting at an annualized rate of 0.3%. This was in line with the consensus and affected by the unique situation in which there was an import surge ahead of the expected tariff increases, raising concerns about a prolonged trade war and the impact on economic growth.
These concerns also appeared in the consumer sentiment readings, which hit their fourth-lowest reading since 1980, and inflation expectations surged.(1) We believe inflation expectations are more important than current inflation readings because they influence future economic behavior, shaping the decisions of consumers, businesses, and policymakers. High inflation expectations can cause consumers to push forward spending to avoid paying more later. Businesses might raise prices preemptively. Central banks, like the US Federal Reserve, rely heavily on inflation expectations when setting short-term interest rates.
With this as the economic background, there are two key unknowns we believe will likely shape the trajectory of the economy in the coming months:
- Tariff Policy, which continues to create volatility across financial markets. Any shifts in trade restrictions could have wide-ranging effects, influencing corporate earnings, global supply chains, and overall economic growth. We will continue to review upcoming negotiations and potential policy changes, as they could significantly alter the investment landscape.
- Future consumer prices and potential product shortages. Inflationary pressures, supply chain disruptions, and shifting consumer demand could drive unpredictable price movements. Rising costs for essential goods and services may dampen consumer spending, while shortages in key industries, such as technology, manufacturing, and retail, could further strain economic momentum.
Normal Market Correction or Something More?
Sometimes the best perspective comes from taking a step back and looking at the big picture. Chart #1 is a weekly chart of the S&P 500 starting in May 2022. The big issue for investors in 2022 was aggressive short-term interest rate increases by the Federal Reserve Bank (The Fed), continued global supply chain issues, and inflation. At that time, consumer sentiment was waning. The University of Michigan Consumer Sentiment Index was in decline, and the current economic conditions index marked its lowest reading since 2013. Inflation expectations at the time were 7.4%. Nearly 48% of those surveyed believed their wages would rise less than prices.(2) The AAII Bulls-Bears numbers skewed heavily to the bears. The recession that was predicted never materialized.

Chart #1: www.stockcharts.com Data 05/01/2005 – 05/06/2025 as of 05/06/2025. An index is not managed and not available for direct investment. MA 13 = 13-week moving average MA 40= 40-week moving average MA 150 = 150-week moving average. Past performance is not a guarantee of future results.
Moving to the present and there are several similarities. Inflation is low, but future inflation expectations are high. The global supply chain, while not disheveled due to the pandemic, is a persistent subject surrounding the markets because of tariffs. The Fed hasn’t increased interest rates like in 2022; however, there is a lot of chatter about what direction they should be moving in among the talking heads.
Turning to the bond market, we see a compelling technical setup in Chart #2. Over the past 20 years, the 10-year Treasury yield has fluctuated widely, reaching highs of around 5% and dipping below 1% at its lowest points. More recently, over the past three years, yields have moved within a tighter range of 3% to 5%.
At this juncture, technical indicators suggest the formation of a wedge pattern, a setup that often precedes a decisive breakout. This means the yield is likely to break above or below its current range, signaling a potential shift in market direction. We are watching closely for confirmation of this breakout, as we believe it could have significant implications for the stock market and broader financial conditions.

Chart #2: www.stockcharts.com Data 05/01/2005 – 05/06/2025 as of 05/06/2025. An index is not managed and not available for direct investment. MA 50 = 50-day moving average MA 200= 200-day moving average. Past performance is not a guarantee of future results.
So, Who’s Driving the Bus Now?
As we have iterated in the past, the performance of the stock market up or down happens because of multiple factors and is not as simple as X causes Y. We also believe that even if you knew what the market was going to focus on in the coming days/weeks/months you still could be surprised by the reaction. Did anyone expect that after the world closed for business in March 2020 due to COVID, the S&P 500 would end the year higher than it started?
In our opinion, what happens with the stock market in the coming months will likely be a result of the following factors:
Federal Reserve and Rates: Fed Chairman Jerome Powell has indicated that persistent inflation continues to be a concern, and the timeline of possible interest rate cuts is currently in flux. Why? Because they are caught between the real possibility of tariff inflation happening, at a time when the job market has been tightening, and major corporations have been starting to post layoffs. For example, here in Allentown, PA, Mack Trucks announced they would be laying off 250 to 350 workers due to waning heavy-duty truck orders.(3) With a dual mandate of price stability and maximum sustainable employment, it is hard to say what the Fed would do in a rising rate and rising unemployment scenario. We believe it would be a negative for the stock market if the rate cuts that the market is expecting later this year do not materialize.
Company Earnings and Forward Guidance: First-quarter earnings reports have introduced significant uncertainty, which is likely to persist in the months ahead. While some companies have withdrawn their guidance entirely, others have provided projections based on multiple economic scenarios, reflecting the challenges of navigating an unpredictable market environment. Recently, some companies have started to estimate the hard dollar cost of tariffs. A continued deterioration in company earnings estimates would likely put pressure on the stock market.
Tariff Policy and Trade Negotiations: In our opinion, this is the major wildcard for the stock market. Positive outcomes with some or all of our major trading partners could mitigate any negative effects from Fed policy and/or company earnings. We believe the best-case scenario would be to have a firm policy that isn’t essentially an embargo on goods coming from any or all countries, which allows multi-national companies to make rational business decisions for where production of products will occur.
Final Thoughts
Since the start of the year, we have made the case that there would be a “normal stock market correction” of 10-15% at some point in 2025. That correction started at the market peak in February and is still with us today. Unlike the more recent pullbacks for the equity indexes, this one came with a unique set of circumstances.
As summer approaches, uncertainty and pessimism surrounding trade policy have emerged as the dominant forces shaping the stock market. Ongoing tariff disputes, concerns about global supply chain disruptions, and warnings of higher costs to consumers have left investors grappling with an unpredictable landscape. Businesses, facing rising costs and uncertainty about future regulations, are adjusting their strategies, pulling guidance, or preparing for multiple economic scenarios. This ambiguity has fueled market volatility, with equities reacting sharply to policy announcements and negotiations. Until there is greater clarity on trade relations, we expect investor sentiment will likely remain cautious. On the other hand, a resolution to trade issues with our largest trading partners could be a significant catalyst for the stock market.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
Sources:
(1) Consumer sentiment plunges in April on tariff fears, inflation expectations at 1980s high | Axios
(2) Survey of Consumers May 12 2022 | University of Michigan
(3) UPDATE: Mack Trucks’ 250 to 350 Lehigh Valley layoffs to occur over 90 days | LehighValleyNews.com
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Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.All investing involves risks including the possible loss of principal invested. Past performance is not a guarantee of future results.
Index returns are not fund returns. An index is unmanaged and not available for investment.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted index of 30 “blue-chip” industrial U.S. stocks.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
S&P Midcap 400 Index: The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between the S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
S&P Small-Cap 600 Index: The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size, liquidity (bid-asked spread, ownership, share turnover and number of no trade days) and industry group representation. It is a market value-weighted index (stock price times the number of shares outstanding), with each stock’s weight in the index proportionate to its market value.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
MSCI World Index: The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.
MSCI EAFE® Index: The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The CRB (Commodity Research Bureau) Index measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodities trades.
Bloomberg Barclays U.S. Aggregate Bond Index: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
NASDAQ Composite Index: The NASDAQ Composite Index measures the market value of all domestic and foreign common stocks, representing a wide array of more than 5,000 companies, listed on the NASDAQ Stock Market.
Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents.
U.S. Dollar Index (USDX) measures the value of the U.S. dollar relative to majority of its most significant trading partners. The index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.
Technical analysis is only one form of analysis. Investors should also consider the merits of Fundamental and Quantitative analysis when making investment decision. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the bond’s price. Credit risk is the risk that the issuer will default on payments of interest and/or principal. The risk is heightened in lower rate bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Investing in commodities is not suitable for all investors. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors including changes in supply and demand relationships, weather and acts of nature, agricultural conditions, international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies which may expose investors to additional risks, including futures roll yield risk.

Robert I. Cahill, Partner
Rob.Cahill@wfafinet.
Jonathan D. Soden, Managing Partner
Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner
Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner
Susan.Shupp@wfafinet.com