Market Insights Recap — Week of April 28, 2025

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital's Private Bank. 

On tap this week, plenty of action underneath the surface. What got thrown out with April's bathwater? And does anybody remember the economy?

A two out of three is not bad at the plate in baseball. And two out of three up weeks for stocks is a win after that March-April slide. For the year, the S&P has dropped 6.3% through last Friday and 11% since its all-time high in February. That's a garden variety correction, but it's been fueled by an out-of-this-world Trump tariff trauma. 

And after the bad news, how about some OK news? Markets are sensing a less horrible future helped by tariff news from China. Again, we're by no means out of the woods in this correction. We're well away from the worst. We think there will be another retest of the lows established three weeks ago. Those retests usually occur in the next couple of months and on some kind of bad news. An example of bad news, well, how about India and Pakistan going to war again. So for portfolios, if you're in, stay in. If you have cash to put to work, you can afford to be patient in here. An odd tenet of Wall Street is that diversification always works when times get tough. Splitting a portfolio between stocks and bonds has been accepted orthodoxy since the mid 1970s. Reality? When markets are jolted by some event like tariffs being way bigger than expected, everything gets sold at once. So when a shock hits markets, good stuff like Treasury bonds gets sold to meet margin calls, and the risky stuff, it gets dumped at the same time. 

What does that mean for our clients? Well, one asset class that got thrown out with the market bathwater is municipal bonds. Over the last several years, a high-quality five-year municipal bond yielded barely two-thirds of the five-year Treasury note. So when the five-year Treasury yielded at 3%, a Triple-A rated municipal yielded about two. Today, five-year Texas bonds can be purchased for nearly 80% of the Treasury yield. If it were fully taxable, that would produce a yield of around 5.7%, well above the five-year Treasury 3.9. So from a portfolio perspective, our clients are enjoying tax exempt rates that they've not seen in a good long while. Our economy has all been forgotten in the Trump tariff trauma. Looking at the hard data, the economy continues to trend along in first gear. Manufacturing, new home sales and recent surveys of services, they also just little change month over month in activity. Orders for big ticket items, airliners, things like that did spike last month. A rush to beat tariffs. Uncertainty about what tariffs will look like is still high, but fear is down now that Trump is back down three times in two weeks. We think China tries to wait Trump out for another backdown. Although they're getting the reverse squeeze and some very important raw materials. Two in particular: semiconductors and ethane from the U.S., a key component in making plastic. Pass the popcorn; it's getting interesting. 

Wednesday is the first look at GDP growth for the first quarter, likely flat. Friday, April jobs report. Unemployment likely held steady at 4.2%. Net-new jobs around 130,000. Anywhere near 200,000, the Fed will definitely stay on hold and not cut rates. First quarter earnings are coming in better than expected, on track for a 10% growth over 2024's first quarter. This week, four of the Magnificent Seven report: Amazon, Apple, Facebook and Microsoft. So we should have a pretty good read on big tech and their spending plans. 

So wrapping it up. Economy continues rolling along in first gear, nowhere near recession or stagflation. Markets grinding back and forth looking for some direction, but they are rebuilding energy. They're finding some encouragement from first quarter earnings as companies are not cutting back on guidance as much as feared. Let us know how we can help; 'til next time.