Financial Markets Review

U.S. equity markets endured one of their most turbulent Aprils in years, brought on by aggressive tariff announcements and questions surrounding Fed Chair Jerome Powell’s job security. The barrage of uncertainty led to a surge in volatility that sent major indices plunging close to bear‐market territory before a late‐month rebound. The S&P 500 ended April down 0.76%, while the tech‐heavy Nasdaq eked out a 0.85% gain, driven by a rally in mega-cap technology names. Small caps, as measured by the Russell 2000, suffered the most, declining 2.38%. Not even the long end of the Treasury curve was spared, which has historically been a safe haven in times of equity market volatility. At one point, both the 10-year and 30-year U.S. Treasury spiked nearly 50 basis points over the course of a few days. This was the largest spike in yields over such a short time period in over 40 years. As equities rallied, so did U.S. Treasuries, with the 10-year ending the month down 5 basis points from where it closed in March.

The month’s havoc began on April 2nd, when the White House unveiled century-high tariffs on imports from nearly all countries around the world, which triggered the worst two-day sell-off since March 2020. On April 3rd, the S&P 500 plunged nearly 5%, its largest one-day slide in three years, before shedding another 6% on April 4th as many countries retaliated with counter-tariffs. Within 48 hours, U.S. indices erased more than $5 trillion in market value, bond yields vacillated wildly, and volatility metrics briefly matched those seen in the early days of the COVID-19 crash. After much angst, on April 9th a 90-day pause on most tariffs was announced, excluding China, which instead saw their tariff rate increased to 145%. Market sentiment briefly turned sharply positive on the announcement of the pause, with the S&P logging its best single-day gain since October 2008. However, the damage to market confidence was done, as strategists began to cut growth forecasts and recession odds climbed. In fact, according to Bloomberg, at no other time in the past 25 years has the gap between the highest and lowest year-end S&P 500 targets been so wide, reflecting the uncertainty and confusion across strategists.



Source: Bloomberg

As markets continued to digest the potential effects that tariffs would have on the economy, tensions between the executive branch and the Federal Reserve added another layer of uncertainty. At the Economics Club of Chicago, Fed Chair Powell made the following remarks.

“Our obligation is to keep longer-term inflation expectations well-anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem. We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension.” – Fed Chair Jerome Powell at the Economics Club of Chicago on April 16th, 2025

Powell’s hawkish comments on tariffs—warning they could slow growth and raise inflation—highlighted the Fed’s policy dilemma, as officials debated whether tariffs might cause persistent inflation or merely a one-time price shift. These comments caught the ire of President Trump and reports emerged that Trump had considered firing Powell, citing frustration with the Fed’s reluctance to ease policy in the face of rising trade-related headwinds. While Trump later clarified that he did not intend to dismiss Powell, the episode raised questions about central bank independence, which just added even more uncertainty to the already cloudy picture.

So far, the broader economic picture has held firm but is beginning to reflect growing strain. The first read on Q1 GDP showed a surprise contraction, the weakest performance since the first quarter of 2022. However, the weakness in GDP was really driven by a massive increase in imports as companies tried to bulk up on inventories before the implementation of tariffs. Consumer sentiment fell to its lowest point since July 2022, while confidence levels dropped to early-pandemic lows. Manufacturing indicators also hinted at softness ahead. The New York Fed’s Empire State Manufacturing Index showed a dramatic drop in its future business conditions component, now at its second-lowest level in over two decades. Combined with the weak GDP print and declining sentiment indicators, these data points suggest the effects of tariff policy may extend beyond headline equity volatility and into the real economy.

Corporate America has also found itself caught in the crosscurrents. According to Bank of America’s earnings tracker, mentions of demand weakness spiked on earnings calls, along with discussions of cost mitigation strategies including supply chain relocation, price increases, and hiring freezes. While widespread layoffs have thus far been avoided, which is a key factor in maintaining household consumption, uncertainty levels among management teams have climbed to their highest levels since early in the COVID crisis. This has led to many companies either pulling guidance or providing an unusually wide range of potential outcomes.

As the month wrapped up, it appears the shock and awe phase might have passed us. Volatility has subsided a bit and equity markets staged a huge comeback, clawing back nearly all the post “Liberation Day” losses. However, it would be much too premature to say we are in the clear and that markets should head back to previous highs. Valuations are still high, albeit a little less than what they were coming into the year. And it will take time to assess any economic damage that has been caused. The next few weeks and months will be telling as more companies provide updates and economic data reports for April begin rolling out.

Tandem Strategy Update*

In the last edition of Observations, I briefly touched on our philosophy when it comes to how we manage money. Given how volatile markets have been to both the upside and downside over the past few weeks, it’s probably worth rehashing. It’s important to remember that your Tandem portfolio is not the market. While daily market swings can be distracting, our focus remains on owning high-quality companies that consistently grow revenues, earnings, and cash flow through any economic cycle. We don’t chase trends or time the market, but rather we stay disciplined, even when the broader market overlooks or rediscovers the value of consistency and strong fundamentals. Our disciplined approach means cash is a byproduct of the investment process, not a market call. When there are more companies to sell than to buy, cash levels rise and vice versa. Over the past year, we exited or trimmed positions that no longer met our criteria or were signaled by our quantitative model to be unsustainably overvalued. The result was rising cash levels toward the end of last year, which has now positioned us to capitalize on the recent volatility.

As volatility persisted throughout the month of April, we were very active in taking a couple of new positions and adding to our existing holdings, shown in the table below. In our Mid Cap Core strategy, we established new positions in Kinsale Capital Group (KNSL) and Badger Meter (BMI). KNSL is a specialty insurer operating in the U.S. excess and surplus (E&S) lines market, providing coverage for high-risk or unconventional exposures that fall outside the scope of standard insurance. By leveraging proprietary technology and tight expense controls, Kinsale maintains a cost advantage and focuses on underserved small accounts, enabling consistent growth and superior underwriting margins since its 2016 IPO. BMI designs smart metering and data analytics solutions for water, gas, and electricity utilities, helping them improve real-time monitoring, operational efficiency, and billing accuracy through cloud-based technologies. The company has demonstrated strong financial discipline with consistent cash flow growth, no debt, and a 32-year track record of consecutive dividend increases.



*The transition level activity taken by Tandem is applicable to new manager-traded accounts and new money in manager-traded accounts, not the composite or firm-wide level. New manager-traded accounts and new money in manager-traded accounts are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions, this process differs from Tandem’s model-provided strategies, where money is invested on the day the account opens. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

Source: Source of all data is FactSet, unless otherwise noted.

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Disclaimer: Tandem Investment Advisors, Inc. is an SEC registered investment advisor.

This audio/writing is for informational purposes only and shall not constitute or be considered financial, tax or investment advice, or an offer to sell, or a solicitation of an offer to buy any product, service, or security. Tandem Investment Advisors, Inc. does not represent that the securities, products, or services discussed in this writing are suitable for any particular investor. Indices are unmanaged and not available for direct investment. Please consult your financial advisor before making any investment decisions. Past performance is no guarantee of future results. All past portfolio purchases and sales are available upon request.

All performance figures, data points, charts and graphs contained in this report are derived from publicly available sources believed to be reliable. Tandem makes no representation as to the accuracy of these numbers, nor should they be construed as any representation of past or future performance.​