April 28th, 2025 - Can the bull market restart ?

Markets showed some signs of life and who the real "boss" is. It seems to us that Trump has found his match, none other than the financial markets, and he has been beaten twice so far, at the beginning and at the end of this month. During his first three months in office, Trump has upended federal agencies, has bullied and provoked traditional international allies and has behaved like a dictator in his own turf. All of this have been met with public protests, court challenges, attacks from Democrats (and few fellow Republicans) and have hurt his polling numbers.

Despite all that, the only true force that has made him take a step back has been the financial markets turmoil, which he himself created. Less than 48 hours after his "liberation day" announcements and as the world around him was abandoning the dollar and was selling the US government bonds and equities, he offered a 90-day pause to the global reciprocal tariffs . Markets responded with the biggest daily rally since 2008. Last week, as a new wave of selling hit US financial assets because of his public threats to fire J. Powell, he announced that he never really intended to fire the FED's Chairman and had his Treasury Secretary claim that there will soon be a deal with China (which the latter denies it forcefully...).

Was March and April just a nightmare or the beginning of a harsh reality for the global economy and markets ? It is futile to try forecasting what President Trump will wake up to next. His arrogance and overestimation of power can lead to yet another negative twist in his tariffs policies or with respect to the FED's credibility and independence, or in other words lead to an accident. Instead, we should focus on the facts we know so far. A global additional tariff of 10% is still in place for US imports, which hurts operating margins of exporters and/or increase the price of consumer goods. This will definitely have an impact on GDP growth, which means that market expectations for 2025 profits must come down significantly. We also have almost 60 days left to see whether the reciprocal, huge tariffs are finally going to be imposed or not, in which case a rather larger recession will probably materialize. All in all, the relief rally brought equities back at valuations which most probably discount the 10% tariffs and the corresponfing economic slowdown, but would be considered still expensive if we finally re-enter a harsher trade war scenario.

But we have also learned by now that the US administration is reacting to a market meltdown. In early March, President Trump spoke about accepting "some little pain" in order to proceed with the aggressive agenda on tariffs which would lead to a "great America" soon. This "little pain" caused by a 10% correction in the S&P500 was not enough for him to change his mind, of course. But when he realized that the credibility of the US dollar as a reserve currency as well as the ability to borrow from international creditors to finance the huge US deficits are at risk, he did not have any other choice but to make a few steps back. Perhaps he learned his lesson, perhaps not, especially now that the markets have stabilized he might be tempted again to proceed with less caution. On the positive side, Treasury Secretary Bessent has taken over from the tariff "czar" Mr. Navarro and appears to be the voice of reason within the US administration, managing to silence even Elon Musk, who has decided to be less involved in the government in the following weeks.

Global equities cheered the about face of President Trump, rallying to the levels last seen around the April 2nd "liberation" day. The Nasdaq outperformed with a 7% jump , reducing the loss for the year to about 10%, while the S&P500 is now -6%. Europe also rallied by about 4% on average, bringing the performance differential between US and European equities in EUR terms to a whopping 17% in favor of Europe, year-to-date.

Whether this is a bear market rally or the beginning of a new bull market is anybody's guess. At current levels the risk-reward has clearly deteriorated again , given what we discussed above. There is a significant catalyst this week for a move in both directions, none other than the Q1 results and forward guidance of the major Tech companies in the US (Microsoft, Apple, Amazon). Alphabet has already posted solid results which provided some relief and hope that the worst could be behind us. However, we are also very close to technical levels which will now act as resistance (ie. the 50day moving averages for S&P500 and Nasdaq).

Bonds staged a mini rally, as the US bond market stabilized. The US 10-yr Treasury settled at 4.30%, down about 20bp from the recent peak, but remain about 30bp higher from the March low. In the Eurozone the bond rally brought yields to the lowest level since early March, when Germany shocked (positively and negatively) the markets with Mr. Merz's intention to implement aggressive fiscal spending to boost the local economy. Our view in mid-March that EUR high quality bonds looked attractive again has been confirmed for now, as prices have moved up by more than 3% since then. The 1-5yr maturities of the German yield curve is now below 2%, which points to a severe slowdown anticipated in the Eurozone. We would not chase the market at these levels.

The uncertainty stemming from the US tariffs' policies continued to impact business sentiment in Europe. The Eurozone Composite PMI fell by 0.8 points to a 4-month low of 50.1, more than expected. The decline was due to a weaker Services PMI, which fell by 1.3 points to a 5-month low of 49.7, much lower than consensus of 50.5. In contrast, the Manufacturing PMI held up better than expected in an environment of global trade tensions, ticking up 0.1 point to 48.7 although consensus had penciled a drop to 47.4. Looking into the details of the PMI report, 1-year business expectations fell by 4 points, the sharpest 1-month decline since the start of the Ukraine war in March 2022, as businesses across sectors and countries turned more cautious. In services, 1-year business expectations have not been this pessimistic since the pandemic in mid-2020.

Chart of the Week : US consumers have record low savings and the stock marker plunge make things worse for their ability to spend.

The above, rather complicated, chart compiled by UBS Equity strategists, shows the savings rate of consumers in three countries: France is in black, the UK in red and the US in green. The big spike in 2020 is due to the pandemic, during which consumers dramatically stopped their spending because either of lockdowns or fear of the unknown with respect to their jobs and health of course. As we moved into 2021, the vaccination process had advanced, businesses were again open and consumers globally started their spending spree which caused the huge drop in the savings rate primarily in the UK and the US. We can observe that in the US the savings rate dropped to a record low of 2%, and that explains of course the recent strength of the US economy. In France and other parts of the Eurozone however, consumers remained cautious and the savings rate is higher than 15% and is getting closer to 18%, the highest of the last fifteen years, which aslo explains the weak growth. The significant drop of the stock market in 2022 made US consumer cautious again and started saving more, only to go back to their usual habits in 2024, as the stock market recovered significantly. The clear message is that US consumers will most probably start spending less again and save more, which will have significant implications on economic growth. On the contrary, European consumers are in a much better shape to weather any economic slowdown and given the necessary motive (ie increased fiscal spending by the governments) they have firepower to spend and invest. Europe appears to be in a better state, than what was believed when Trump was elected.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : UBS, Cover photo: Financial Times