April Showers

April was a turbulent month for global financial markets, characterized by heightened uncertainty and sharp price swings. Just three months into the Trump Administration, sweeping shifts in trade policy – most notably a 10% import tariff announced on April 2nd – rattled investor confidence. The announcement fueled concerns over rising inflation and increased borrowing costs, prompting sell-offs across both equity and fixed income markets. In an attempt to ease market jitters, President Trump announced a 90-day pause on tariffs exceeding 10% for all countries except China. This temporary relief reignited investor confidence and markets rebounded on the back of the tariff reprieve. Investor sentiment was tested once again on the final day of trading in April after first quarter GDP data showed a contraction of 0.3%, well below expectations of 0.4% growth. The report threatened to break a six-day market rally, but the index made a surge late to remain on the green streak. Trade tensions, mixed policy signals, and signs of slowing economic growth defined a month of intense volatility.

The S&P 500 swung wildly throughout the month, with four trading sessions moving more than 3.5% either way and eleven days with swings over 1.5%. The index briefly dipped below 5,000 before rebounding in the final weeks on renewed hopes of a potential U.S.-China trade breakthrough and the affirmation of FED independence. Despite the late rally, the S&P ended the month 0.76% lower than its March close – a sign of lingering caution.

Commodities

Commodities did not escape the Spring storms. Oil prices faced significant downward pressure due to announcements in supply changes from OPEC+ and Saudi Aramco. Brent crude prices plunged to their lowest levels in over four years, dropping below $60 per barrel in early April amid concerns over a potential global supply glut. Although prices stabilized at around $63 per barrel following the postponement of tariffs, the market remains volatile as investors contend with uncertainties surrounding OPEC+’s production decisions. Gold also experienced significant volatility during the month of April. In the first two days, prices trended upwards, reaching $3,160 an ounce. However, starting on April 2, the commodity slid to $2,978 per ounce before surging to an all-time high of $3,434 on April 21st. By month-end, gold was trading at approximately $3,316, reflecting continued demand for safe-haven assets.

The U.S. Dollar

The U.S. Dollar Index (DXY) plunged to 99.2391 on April 23, its lowest level since March 2022. While a weaker dollar can boost U.S. exports by making them more competitive abroad, it also raises the cost of imports, contributing to domestic inflation. More importantly, the greenback’s depreciation reflects declining global demand for U.S. assets, including Treasuries – a signal that international investors may be reassessing confidence in the U.S. economic outlook. At the time of writing the dollar sits at $99.66.

Fixed Income

Amid this backdrop of market-wide instability, few asset classes felt the ripple effects of April’s turmoil more acutely than fixed income. With inflation expectations in flux, central bank credibility in the spotlight, and investor appetite for risk sharply recalibrating, the bond market has become a key barometer for investor sentiment and macroeconomic trajectory.

U.S. Treasuries

U.S. Treasury yields swung wildly during the month of April. On April 1st the U.S. 10-year closed at 4.15%. A mere three days later it was down below 4.00%, hitting 3.86% during the April 4th trading session. Following this drop, from the 5th to the 11th the 10-year yield skyrocketed past 4.5%, hitting its highest point during the April 11th trading session at 4.59%. By April 16th it had come back down to earth to close at 4.29% and at the time of writing it sits at 4.162%. Investors experienced over a 60-basis point swing in 10-year treasury yields over the span of 6 days. So, what drove these drastic shifts?

Several factors contributed to the volatility. The ongoing trade discourse between the U.S. and its global partners, particularly the initial tariff announcement on “Liberation Day” and the ensuing retaliation sparked a market and media frenzy. Concerns over inflation and the long-term effects of a high-tariff environment caused consumer sentiment to plunge.

The second factor is one of confidence in U.S. markets mentioned previously when discussing the dollar. The decline of the greenback along with a U.S. treasury sell-off has economists questioning whether investors are losing confidence in the U.S. Since tariff conversations have ramped up short term treasury notes have had week demand at auction furthering the idea that investors are sitting on their hands during periods of policy change.

Corporates

In early April, asset flows into ETFs that invest in corporate loans saw a significant slowdown, with a notable outflow. On April 4th, corporate bond ETFs experienced a record $1.3 billion in outflows, according to JPMorgan. While this may seem jarring, performance during the month of April whipsawed frequently but ended on a positive note. The Dow Jones Corporate Bond Index fluctuated, starting the month up 0.50% on April 3, before dipping to -2.70% by April 11. It regained momentum leading up to April 16, but dipped again to -2.17%, before rallying to finish the month +0.35%.

Spreads widened across the board within the corporate bond market. Investment grade bonds saw more modest movement compared to high-yield bonds, but more on that later. The ICE BofA US Corporate Index Option-Adjusted Spread, a common measure of investment-grade spreads over Treasuries, drifted wider by about 15-20 basis points throughout the month, but finished the month at around 8 bps higher than the beginning of April. The shift reflects a more cautious – but not panicked – investor stance in a volatile credit market. Issuance in the investment-grade market remained active, as many companies continued to tap the market ahead of potential further rate volatility.

High-Yield

According to the Barclays high-yield bond capitulation signal, high yield credit markets neared a tipping point in early April, leading up to the 90-day tariff pause. Barclays defines “capitulation” as the point where sharp and short-term selling pushes prices lower, triggering additional selling. The indicator jumped significantly since the end of March, peaking in the low 90’s in the days following “Liberation Day”. This was the highest reading since October 2023, when Treasury yields surged on inflation concerns. At 100%, the market is in full capitulation, which has only happened five times since 2000 – during the 2008-2009 financial crisis, the 2011 European debt crisis, the plummeting of oil prices in 2016, the start of the pandemic in 2020, and when interest rates surged in 2022.

The rise in the capitulation signal coincided with the widening of high-yield spreads. The ICE BofA US High Yield Index Option-Adjusted Spread widened sharply due to investor uncertainty and a pause in bond purchases. High-yield spreads were relatively tight at the beginning of the month, hovering around 345-350 basis points over the U.S. Treasury. After the tariff announcement, spreads widened substantially, pushing toward 450-475 bps – a jump of about 100-150 basis points in just a few days. Some of the drivers leading to this blow out include the spike of the U.S. 10-year mentioned earlier, a general risk-off sentiment prior to the 90-day tariff pause, and broader growth concerns surrounding the economy which led to slower buying in fixed income. Nonetheless, spreads came back down to around 370 bps at the end of the month, only 20-25 bps higher from where we started at the beginning of April. The key range to monitor going forward will be whether high yield spreads reach territories that exceed the 800-1000 bps mark which were previously seen during the 2008 financial crisis and COVID.

May Flowers?

April’s turmoil has left investors on edge, and while some stabilization emerged late in the month, volatility is unlikely to vanish overnight. Key questions remain unanswered: Will U.S.-China trade negotiations produce meaningful progress, or will further tensions reignite market instability? Can the Federal Reserve maintain its independence amid growing political pressure? Will the bond market continue to signal deeper undercurrents of stress, or settle as clarity around policy direction emerges?

Heading into May, market participants should brace for continued swings across asset classes. The bond market will likely remain a crucial barometer for sentiment around the future of U.S. growth, inflation, and global confidence in U.S. assets. Credit spreads, especially in the high-yield space, warrant close monitoring for any signs of deeper cracks in corporate credit health. Meanwhile, the equity markets may remain hypersensitive to the news cycle, Fed commentary, and geopolitical developments.

Although risk appetite showed some recovery toward month-end, it will be critical to focus on what hard economic data and corporate earnings are signaling to markets and investors. Whether May brings true “flowers” for investors will depend on whether green shoots of stability can take hold – or if April’s clouds continue to linger.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #: 733543