The Setup & Where to Focus

Stocks soared last week despite ongoing intense volatility. 

• The S&P 500 rose 5.7% for its best week since November 2023. US large caps nearly notched their best week in five years. The Nasdaq Composite led the charge, adding 7.3% for its strongest weekly climb since around the bear-market low of October 2022. The Magnificent Seven stocks came back to life—a group at the center of the trade-war selling pressure. 

• NVIDIA (NVDA) cratered to under $87 at its Monday low, down nearly 45% from its all-time high of $153 touched just three months prior. By Friday’s close, the chipmaker’s shares recovered to $111, a 28% rebound. All other Mag 7 stocks were up, of course, but gains were more measured in the mid-to-high single digits. 

• President Trump's comments on potential tariff relief in the electronics supply chain could influence market sentiment. Nasdaq futures open up 1.5% Sunday night.

The Volatility Index (VIX), like the SPX, had a week for the ages. 

• It was 60+ last Monday morning and remained above 30 throughout the headline- and rumor-driven five-day period. A 60 VIX implies a daily S&P 500 swing of about 4%--investors experienced that and then some. 

• After huge losses on the Thursday and Friday post Liberation Day, stocks were almost flat Monday (though it was a wild ride), then printed a fresh year-to-date closing low on Tuesday before among the biggest single-day rallies of all-time on Wednesday, April 9. 

• The Dow fell about 1,000 points Thursday, but that felt like a ho-hum day compared to the previous session’s 3,000-point surge. 

• Encouraging investors was a solid advance to end the week—no late-day selling pressure ahead of the weekend for a change. 

• By the time the dust settled, the VIX was actually down on the week, falling from 46 on April 4 to 38 on April 11.

Last week's major macro news was the digestion of President Trump’s Liberation Day announcement of universal and reciprocal tariffs. 

• Recall that on April 2, the POTUS unveiled a broad 10% baseline levy on virtually all US imports, with higher duties targeting specific nations, including an additional 34% on China. 

• It hit hard countries with large trade surpluses with the US, resulting in the steepest net US trade barrier in over a century. 

• The 10% duty began being collected on April 5, while the higher reciprocal tariffs went into effect on April 9, including a 20% levy on European imports. 

• China responded with retaliatory tariffs shortly after the White House Rose Garden event. 

• The market’s tide turned last Wednesday afternoon when Trump unexpectedly posted on Truth Social that a 90-day freeze on country-specific tariffs (excluding China) would ensue. 

• He raised China’s import duty to 125%. 

• Over a few moments, the S&P 500 soared to a nearly 10% gain on the session, retracing almost three-quarters of the post-Liberation Day losses. 

• Markets took in stride news of China raising its tariff on US imports to 125% last Friday--President Trump called that hike a ‘joke.’ 

It was a wild week on the macro and with the market’s internals: From a sector perspective, Information Technology (XLK) powered the rally. It added 9.7% but remains the second weakest of the 11 S&P 500 areas so far in 2025. 

• Industrials (XLI), Communication Services (XLC), and Financials (XLF) were the other spots in line with or outperforming the broader market. 

• That’s a healthy mix of growth and cyclicals—defensive sectors like Health Care (XLV), Utilities (XLU), and Consumer Staples (XLP) were up but below the SPX’s performance. 

• Energy (XLE) was slammed thanks to a freefall in WTI and Brent oil prices; the former now hovers near $60 per barrel, down huge in 2025. 

• Real Estate (XLRE) was also fractionally negative, and its decline was driven by a steep selloff in the Treasury market (which we’ll get to later). 

US small and mid-cap stocks sharply underperformed their large-cap peers. 

• The S&P MidCap 400 ETF (MDY) was up less than 3%, while the iShares Russell 2000 ETF (IWM) tacked on only 1.75%. 

• The Magnificent Seven ETF (MAGS) posted an 8.5% gain, which overshadowed virtually all other equity market jumps. 

• As we’ve often called out, domestic SMID caps rely more on debt financing, so the big interest rate rise capped their rallies. 

• What’s more, bank earnings on Friday, while solid, brought about a bit of selling pressure in both large and small financial institutions. Regional banks comprise a significant chunk of the small-cap index.

Turning to overseas markets, the Vanguard FTSE All-World ex-US ETF (VEU) snapped back 4.5%, beating US large-cap value and US SMIDs, but posted negative alpha to the S&P 500.

• The US Dollar Index (DXY) lost another 1.2% last week, bringing its two-week tumble to 3.2%--the worst such stretch since November 2022. The DXY has critical support between 99 and 101—it settled Friday at 99.76, briefly touching lows not seen since April 2022. Of course, the index has ranged between 88 and 115 in the past decade, so these are not unusual levels. 

• Trade school: Often, when volatility increases, it helps to zoom out charts to see historical norms—it's easy to get caught up in the near-term noise and the financial media’s sensationalization of each day’s events. 

• Turning back to the performance angle, a sharply weaker greenback usually means ex-US will beat US, but the up move among the Mag 7 overshadowed the dollar’s dip. 

• Still, Europe (VGK) rose 5%, and Japan (EWJ) gained 7%. China (FXI) was about flat, though it jumped on Friday after President Trump announced even bigger tariffs on the world’s second-largest economy. 

Now onto the bond market. Fixed income was just as volatile as the stock market, with the yield on the 30-year Treasury bond having moved from a low of 4.34% on April 4 to a high of 4.99% a week later, recording its biggest weekly yield jump since 1982. 

• For the Treasury market as a whole, it was one of the worst weeks since 2001. 

• The theories are many, but the most prominent is an unwind of what’s known as the “basis trade,” a hedge-fund strategy that exploits the price difference between Treasury notes or bonds and their corresponding Treasury futures contracts. The idea is to take advantage of that spread. 

• Leveraged bets, up to 100x, depend on a convergence between cash Treasuries and futures, but when the pair diverge, bad things can happen. It’s estimated that the basis trade is a $1 trillion arena, and it has grown as the Treasury market has swelled in recent years. Those positions must be unwound when volatility rises and the market moves against the usual convergence trend. It’s a hedge-fund issue, not so much a fundamental macro flaw.

• So, while jarring, the 65-basis-point rise in the 30-year yield could revert lower in the weeks ahead. Importantly, 5% is both psychological and technical resistance—a breach of that mark would likely beget more Treasury selling and higher interest rates, which would almost certainly rattle the stock market once more. 

• We’re also watching how junk bonds perform—the yield spread between speculative-grade credit and Treasuries of the same maturity is up sharply in April, which is not a good sign for the macroeconomy.

As for commodities, WTI crude oil plunged to under $56 per barrel for a time but recovered to close the week about unchanged, between $61 and $62. 

• US oil is down 25% so far this year, which will obviously keep retail gas prices in check as consumer confidence keeps declining. All the while, gold was on a heater after pairing YTD gains to start the month. 

• While black gold is down by a quarter in 2025, the yellow metal has soared by more than 23% to its best start to a year since 1974. For perspective, gold and the S&P 500 (including dividends) have returned about the same in the past eight years. Gold is up more than 1,000% since the year 2000. Near term, it had its best week since March 2020, +6.6%. 

• Shares of gold mining companies (GDX) soared 19.2%--nearly notching the best week in its 19-year history. 

• Finally, bitcoin, ironically enough, was flat again—a sixth consecutive week in the mid-$80,000s by Friday afternoon.

Weekly Calendar Look Ahead

Not mentioned so far was last week’s encouraging March inflation data. 

• Both CPI and PPI were much softer than expected, which, ordinarily, would have teed up the Fed to get back into cutting mode at its May meeting. Tariff uncertainty runs high, so the FOMC will likely be on hold, perhaps until June. 

• This week, the focus shifts to other data, namely Wednesday's March Retail Sales report. Many earnings updates will roll in, too, but we won’t hear from the Mag 7 until later in the month and in May. 

Monday is light, but the NY Fed’s Consumer Inflation Expectations report will be interesting to inspect—last Friday, the University of Michigan Survey of Consumers revealed ludicrously high forward inflation perceptions. 

• Democrats believe 70s-era inflation is imminent, while Republicans expect a muted rise in consumer prices. UMich switched to online polling last year, which has resulted in detached results from reality. 

• The NY Fed’s approach is robust, and shows generally tame inflation feelings. Moreover, the current market-based breakeven inflation rates are between 2% and 2.5% going out a decade—very normal. 

• Later on Monday, we’ll get Treasury bill auctions and a slew of Fed Speak that could move stocks. Lastly, OPEC will publish its monthly oil market report, likely in the morning.

Tuesday, Tax Day, has a list of low-impact events. Import/export price data for March hit in the premarket, along with the NY Empire State Manufacturing Index. 

• Redbook Retail Sales, which rose materially in the previous week, also comes before the bell. 

• Additional Fed Speak comes throughout the session.

Wednesday is all about March Retail Sales. 

• It could be a wonky report, as it may include some pull-forward spending among households before the tariffs went into effect. 

• BofA expects a rather big number based on its in-house card-spending data. JPMorgan Chase pretty much said the same thing on its earnings call last Friday. 

• If Retail Sales obliges, then US Q1 real GDP growth should come in above 0%. 

• We expect solid numbers—while consumers are anxious, positive real wages and a still-low unemployment rate could promote consumption despite the Personal Saving Rate ticking to the highest level since June 2024. 

• March Industrial Production prints 45 minutes later at 9:15 a.m. ET—the month-over-month change could be slightly negative. Business Inventories and housing market data round out the day.

President Trump meets with Italian Prime Minister Meloni on Thursday while the European Central Bank announces its interest rate decision. 

• ECB President Lagarde’s press conference will be particularly interesting in light of the possible trade-war refocus on China. 

• As for domestic data, Building Permits and Housing Starts, two leading indicators, publish at the same time as the Philly Fed Manufacturing Index and weekly jobless claims. 

• Initial Claims have been sanguine, between 200,000 and 250,000 recently. 

• Continuing Claims ticked down last week after printing a cycle high in late March. T-bill auction and Fed Speak occur, too. 

Markets are closed Friday for Good Friday.

Fiscal Policy Framework

Traders have a 3-day weekend on tap, but Congress is already in a two-week recess. Tariff negotiations and budget proceedings dominated lawmakers’ time and attention last week. A more concerted effort against China is hoped for—both at home and among developed nations. The US aims to isolate Beijing by targeting trade deals with friendly countries. 

From a fiscal perspective, Congress and the president must focus on keeping the trade balance in check and boosting exports. The good news is that a weaker US dollar should help domestic companies on the latter, while US multinationals will catch an earnings tailwind from a weaker greenback. 

Before the Easter leave, the House narrowly passed a budget resolution (216-214) to advance Trump’s big, beautiful agenda via reconciliation. It remains to be seen whether it makes it all into one piece of legislation—GOP infighting over spending cuts could result in a watered-down version. Speaker Johnson set a Memorial Day deadline for finalizing the package. Will the Republicans be unified amid differing fiscal priorities? That’s the big question for now.

Risks & Opportunities

• The onus is on the bulls to hold the 4835 SPX line. Stocks have clawed back about 40% of the February 19-April 7 decline, and the S&P 500 has a history of pulling back 19% (not 20%, technical bear-market territory) over the past 35 years. A rally through last Wednesday’s high, after Trump’s Truth Social announcement, would be constructive. A drop below 4835 would bring the July 2023 previous high of 4607 in play with the 4506 61.8% Fibonacci retracement level in view under that.

• Earnings will move markets in the weeks ahead, but Wall Street’s attention is fixated on President Trump’s Truth Social account. It’s also important to point out that Peter Navarro, economic counselor to the POTUS, seems to have taken a backseat to Treasury Secretary Bessent—something we are encouraged to see.

• The bond market is not far from being on the brink. Equity stability may depend on treasury yields remain below 5%. We believe TIPS yields in the mid-2% range offer value. Given that the rate rise was primarily the result of hedge funds being caught offsides, we expect bonds to calm down—something equity traders want to see.

• Oil may continue under pressure as supply/demand dynamics appear somewhat bearish, and technical support in the low $60s per barrel has been violated.

• Macro investors should be on guard for currency battles. (We won’t call them wars just yet.) The DXY’s retreat was significant last week, and the ECB likely doesn’t want to see the euro climb much higher than current levels. China continues to manipulate the yuan, as well.

• History asserts that multi-month forward returns are very strong for stocks when the VIX spikes above 50. On the flip side, the current macro landscape has hallmarks of Q2-Q3 2011, which featured a steep S&P 500 selloff followed by a recovery that ultimately resulted in a fractionally lower low in early Q4 that year.

Quick Hits

• Torsten Slok at Apollo notes, “Daily data of the number of arrivals at the top 10 airports in the US has shown a rapid decline since late February.”

• Last week was the 4th most volatile for stocks in the past 60 years.

• Wednesday was the best day for the S&P 500 since the GFC, good for the 3rd-best day since 1950.

• March CPI inflation fell to 2.4%, below the 2.5% expectation. Headline CPI printed negative for the first time since May 2020. 

• YTD, US weekly bankruptcy filings are at the highest total since 2020.

• Foreigners own 33% of the US Treasury market, down 45% from 15 years ago.

• Prediction markets price in a 62% chance of a US recession this year.