Lexicon Financial Group Weekly Update — April 9, 2025

Apr 9

“No nation was ever ruined by trade.”

— Benjamin Franklin

From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel

Looking Around

President Trump’s tariff policy has had a seismic impact on global markets and caused borrowing costs for the United States (U.S.) government to spike. Major U.S. stock exchanges surged after Trump stated that he would pause higher tariff rates for 90 days on a multitude of U.S. trading partners, while maintaining the 10 per cent baseline levy he imposed earlier this month. He did, however, raise tariffs on China to 125 per cent.

The S&P 500 index gained more than nine per cent - its biggest jump in years. This wiped out a significant amount of the losses the index had suffered. The Dow Jones Industrial Average surged nearly 3,000 points, while the Nasdaq had its biggest day in 24 years.

It is worth noting that while investors have been focused on the massive sell-off in stocks since Trump's shocking tariffs announcement a week ago, trouble was brewing in the market for government debt. As the tariffs went into place this week, the yield, or interest rate, demanded by investors to lend to the U.S. government began to rise quickly. This undermines one of the White House’s key arguments for going through with the tariffs strategy, namely, bring U.S. debt under control. According to former Treasury Secretary Lawrence Summers, long-term interest rates are moving up, even as the stock market moves downwards, which suggests a generalized aversion to U.S. assets in global financial markets. This combination of falling stocks and the government bond sell-off raised the prospect of a full-blown financial crisis and demanded action from President Trump. (1)

So, where does this leave investors?

Well, let’s look back at some of the worst S&P 500 three-day drawdowns since World War II.

Black Monday (October 19, 1987)
-26.34%

Black Monday (October 20, 1987)
-20.55%

Great Financial Crisis (October 9, 2008)
-13.91%

COVID (March 16, 2020)
-12.96%

Long-Term Capital Management (August 31, 1998)
-11.71%

U.S. Credit Rating Downgrade (August 8, 2011)
-11.18%

Source: Yahoo Finance

As of Tuesday, April 8, 2025, the S&P 500 was down by -10.73 per cent as a result of Trump’s tariffs. Now, we do not have any way to predict the future, but we can rely on history.

And it tells us that stock markets have always recovered from shocks, geopolitical events or political maneuvering. It is one of the reasons why we agree with the belief that time in the market (especially if your investment portfolio is properly diversified) is better than trying to time the market. The diagram below shows missing a few of the S&P 500 over the past 30 years could have led to lower returns. On top of this, many of the best days in the market have occurred during periods of market volatility. (2)

*Source: Morningstar Direct, S&P 500 Total Return 1995 – 2024.*

Read and Watch

Want deeper insight into topics in your Weekly Update? Then, read and/or right click:

S&P 500 loses $5 trillion in two days in Trump tariff selloff

European shares close sharply lower after China slaps retaliatory tariffs on U.S.

Farmers fear tariffs could cost them one of their biggest markets in China

Raymond James Markets & Investing: Trade policy shifts put the Fed in a challenging position - CIO Larry Adam, April 4, 2025

Raymond James Economy & Policy: If it ain't broke don't fix it - Chief Economist Eugenio J. Alemán, April 4, 2025

However, just because markets have always shown periods of volatility doesn’t mean we can just brush aside how it makes investors *feel*. There is always an emotional connection with portfolios and money, whether we acknowledge it regularly or not. A clearly articulated plan and an investment strategy designed to achieve your objectives can help, but watching news reports every day does sting.

Diversification certainly helps protect portfolios in periods of extreme volatility and have certainly done so in the past week. More conservative investors have also experienced portfolio declines, but nowhere near as much as what you see in the headlines.

If you are an existing client, we can provide you with a snapshot of your account in real time and talk about what is going on. It would be our pleasure to do this. Even if you are not currently working with us and would appreciate our perspective, we’d be equally happy to chat.

Looking Back

Last week ended with stocks across the world tumbling further, thanks to President Trump’s implementation of tariffs on more that 200 countries, including Canada. The S&P/TSX Composite Index (TSX) slid into a correction, as the escalating global trade war made investors brace for a major hit to economic growth and corporate profits in the weeks to come. The TSX ended down more than 1,100 points on Friday. This exceeds the prior session’s hefty losses, as oil prices plunged nearly eight per cent – its lowest level since 2021. Investor panic seeped in with the CBOE Volatility Index (VIX), also known as Wall Street’s fear gauge, closing at its highest level last Friday since April 2020. (3)

Major stock markets in the U.S. fell sharply, in response to the Trump administration’s announcement of a broad range of harsher-than-expected tariffs. These tariffs fueled concerns around the potential for slowing economic growth, rising inflation, and even a possible recession. In fact, the tariff announcement led to the largest one-day decline for some indexes since 2020 last Thursday, and this decline continued on Friday. The S&P 500 Index posted its worst weekly performance in over five years, last week.

Several countries last week, including China, began to announce retaliatory tariffs and plans for negotiations with the U.S., which only fueled concerns about trade wars and broader uncertainty around global trade policy. The number of Federal Reserve (Fed) interest rate cuts expected in 2025 jumped, following the tariff announcement, as investors bet that negative growth effects from the tariffs will force the Fed to ease monetary policy to support the labour market and spur economic growth.

The March manufacturing purchasing managers’ index (PMI) was released by the Institute for Supply Management (ISM) last Tuesday, which indicated that manufacturing activity contracted after two straight months of expansion. However, the U.S. Labour Department’s closely watched nonfarm payrolls report provided some good news, as it showed that U.S. employers added 228,000 jobs in March, a sharp increase from February’s downwardly revised reading of 117,000 and significantly above the estimate for 130,000. Despite this, U.S. unemployment rate ticked up to 4.2 per cent.

The pan-European STOXX Europe 600 Index ended 8.44 per cent lower last week – its biggest drop in five years - in reaction to the U.S. trade tariffs. Other major European stock indexes also fell sharply. European Central Bank (ECB) policymakers are ready to pause interest rate cuts, given the pronounced uncertainty caused by U.S. trade policies. ECB President Christine Lagarde emphasized the need for caution on the inflation outlook due to the uncertainty caused by U.S. trade policy. Financial markets have raised their bets on an ECB April rate cut to 90 per cent and fully priced in a move by June.

Stock markets in Japan plunged last week, as investors digested the Trump administration’s announcement of a 10 per cent tariff on all imports into the U.S. and a larger-than-expected reciprocal tariff of 24 per cent on Japan. Japan’s auto makers continued to lag, thanks to the separate 25 per cent auto levies previously announced by the U.S.

Chinese stock markets declined last week, as China stated that it would also impose a 34 per cent tariff on all U.S. imports starting April 10. It also announced several other measures, taking aim at bilateral trade activity, including restricting exports of several kinds of rare earths, launching an antidumping probe into medical CT X-ray tubes from the U.S., halting poultry and sorghum imports from a handful of U.S. companies, adding 11 U.S. defence companies to a so-called unreliable entity list, and other actions. This rapid response by China surprised some analysts who had expected a more measured response. (4)

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.