Market Crossroads - Is There Light at the End of The Tunnel?

May 1

Written By Zak .

Insights from Zak Gardezy, CFP®, Founder & Private Wealth Advisor, Wealthstone Private Wealth Management

Key takeaway: Markets have stumbled out of the gate in 2025, but the drivers of the sell-off—tariff brinkmanship, policy uncertainty in Washington and a soft Q1 GDP print—look more cyclical than structural. History suggests that once trade negotiations migrate from podiums to back-rooms, headlines flip, sentiment heals and risk assets re-rate. With Congress moving to extend the 2017 tax cuts, the White House launching an aggressive deregulation push, and futures markets still pricing three Fed rate cuts before year-end, a path to a positive 2025 finish remains open—though not guaranteed.

1. Market snapshot: where we stand

Index	YTD price return (to 30 Apr 2025)
S&P 500	–5.3 %
DJIA	–4.4 %
Nasdaq-100	–6.8 %

The April rout was the steepest since the 2020 pandemic shock: on 3 April the Dow shed 1,679 points (-4 %) and the S&P lost roughly $3 trn in market value in a single session as new tariff plans hit the tape. Equities have since clawed back some ground on hopes of negotiated rollbacks, but the tape remains headline-driven.

2. Trade tensions: anatomy of a tariff cycle

What happened?
• Early April: blanket duties of up to 50 % proposed on a wide range of Chinese imports, plus sector-specific levies on autos, steel and critical minerals.
• Beijing, Seoul, New Delhi and Tokyo threatened—or enacted—reciprocal measures.
How does this movie usually end?
The U.S. has repeatedly used escalatory tariff rhetoric to steer reluctant partners to the table, only to settle for partial roll-backs once political optics are secured. Average resolution time across the past four major U.S. trade disputes has been six-to-ten months, with risk assets bottoming well before formal agreements are signed.
Where are we now?
• Washington has already made quiet overtures to Beijing despite the public hard line.
• Reports suggest tariff reductions on selected Chinese consumer goods are under active consideration as a confidence-building measure.

Base case: Most large partners, including China, ink face-saving “stage-one-plus” accords before year-end, removing the tail-risk of an all-out trade war and allowing equity multiples to revert toward historical averages.

3. Policy tailwinds forming in Washington

3.1 Extension of the Tax Cuts & Jobs Act

House and Senate negotiators have floated an extension of key TCJA provisions—keeping the top marginal rate at 37% and preserving the enhanced standard deduction—within the FY-2026 budget framework. However, there have been discussions centered around a new higher tax bracket for very high income individuals, which has not yet been formalized and may not survive negotiations. Independent estimates suggest an extension would lock in roughly $320 bn of after-tax corporate cash flow over the period, cushioning EPS even in a slower nominal-GDP environment.

3.2 Deregulation reboot

A February executive order requires agencies to compile lists of rules for repeal; an April memorandum accelerates the process by citing recent Supreme Court rulings to bypass lengthy notice-and-comment procedures. The Wall Street Journal calls it a “new high-water mark” for deregulation, noting 31 EPA roll-backs in a single day. While legal challenges are inevitable, reduced compliance drag is already lifting energy and regional-bank earnings estimates for 2026-27.

4. Macro backdrop: weaker, not broken

Q1 GDP: –0.3 % annualised as firms front-loaded imports ahead of tariffs. Inventory swings explain two-thirds of the decline; domestic demand grew 1.2 %.
Consumer sentiment: University of Michigan index slid to 50.8 in April, the lowest since June 2022 and 30 % below December levels. Historically, sentiment begins to recover within three months of a de-escalation signal.
Labour market: Unemployment remains at 4 %, with layoffs contained—suggesting slack consistent with a soft-landing scenario.

5. Monetary policy: the market still sees three cuts

Fed officials are publicly patient, but futures imply a 25 bp cut at the June FOMC, plus two more by September—cumulatively 75 bp. A deeper growth scare could pull those moves forward; conversely, a tariff-induced inflation pop could delay them. Either path keeps real rates well above neutral, leaving the Fed room to respond if trade fears fade.

6. Base-case outlook and portfolio considerations

2025 Outlook: Key Market Pillars

Tariffs
• 2025 Expectation: “Stage-one-plus” deals with China and allies by Q4
• Market Implication: Relief rally in cyclicals, emerging markets, and semiconductors
Fiscal Policy
• 2025 Expectation: TCJA extension plus targeted business incentives
• Market Implication: Support for small- and mid-cap earnings
Regulation
• 2025 Expectation: Accelerated rollback of regulatory burdens
• Market Implication: Multiple expansion in energy and financial sectors
Monetary Policy
• 2025 Expectation: 50–75 basis points of Fed rate cuts (data-dependent)
• Market Implication: Steeper yield curve and tailwind for housing

Risk flags: prolonged tariff stalemate, court-blocked deregulation, inflation re-acceleration delaying cuts.

Prepared by Wealthstone Private Wealth Management Research. This material is for informational purposes only and is not a solicitation to buy or sell securities. Past performance is no guarantee of future results.

Sources

AP News: “How major US stock indexes fared Wednesday, 4/30/2025” AP News
SlickCharts: “Nasdaq 100 YTD Return 2025 – 6.86 %” Slickcharts
SlickCharts: “Dow Jones YTD Return 2025 – 4.74 %” Slickcharts
MarketWatch: “Stock market’s post-GDP whiplash shows it’s ‘foolish’ to expect anything but volatility” MarketWatch
USA Today: “Trump threatens additional 50 % tariff on imports from China” USA Today
JD Supra: “Trump administration modifies tariff actions under national-security powers” JD Supra
Kiplinger: “Trump Tariffs Update: What’s Happening Now in April 2025” Kiplinger
Bloomberg Government: “Will Trump and Congress Extend TCJA Tax Cuts?” Bloomberg Government
White House memorandum: “Directing the Repeal of Unlawful Regulations” The White House
Politico: “Trump directs agencies to quietly repeal regulations—without public notice” POLITICO
Reuters: “U.S. economy experienced a 0.3 % annualised contraction in Q1 2025” Reuters
Bureau of Economic Analysis: “Gross Domestic Product, 1st Quarter 2025 (Advance Estimate)” Bureau of Economic Analysis
Trading Economics: “University of Michigan consumer sentiment plunges to 50.8 in April 2025” Trading Economics
Bureau of Labor Statistics: “Payroll employment rises by 228,000 in March; unemployment rate 4.2 %” Bureau of Labor Statistics
U.S. News/Reuters: “Traders see just three Fed rate cuts in 2025, starting in June” U.S. News Money
Reuters: “Traders pare bets but still see June start to Fed cuts after GDP data” Reuters

Zak .