This Week in Review | Market Drivers Update, Fed Independence, Q1 Earnings Season (Apr. 25, 2025)

Transcript

Paige Tyson:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they mean for markets, and most importantly, the potential impact for investors.

Now, let's review what happened this week.

First, a market drivers update.

Markets continue to be choppy this week, but overall, they trended higher. When it feels like there's a lot going on, it can be helpful to check in on market fundamentals. At Fisher Investments, we evaluate markets through the lens of three key drivers: economics, politics and sentiment. So, let's take a closer look at each. Starting with economics, it's worth remembering that most economic data look backward, while markets are always looking ahead. Still, these numbers can give us a sense of how the real world is lining up with expectations. And right now, we're seeing signs of slower, but still positive, economic growth. Tariff and trade concerns remain a real risk to keep an eye on, but historically, markets have done well in moderate growth environments. Politics have also played a big role in markets this year. So, just a reminder, our approach is always politically agnostic. We believe letting personal politics guide investing decisions can lead to costly mistakes. In the US, there's still quite a bit of uncertainty as the Trump administration continues pushing forward its agenda. But over time, we expect markets to benefit as we get more clarity around what policies are likely to stick, and which ones won't. Outside the US, the political backdrop is a bit calmer. Regions like Europe, for example, and we think that relative calm could give European stocks an edge over US markets right now. Now, turning to sentiment, investor sentiment has taken a real hit. In fact, it's dropped to levels we haven't seen since the end of the 2022 bear market. For example, a recent American Association of Individual Investors survey of US retail investors found that only 27% were bullish. That is a steep drop from where we were in 2024. But here's the upside: when expectations are this low, even mildly better-than-expected news can lift markets. It doesn't take much to surprise to the upside when everyone is already bracing for the worst.

Next, Fed independence.

Earlier this week, President Trump shook markets a bit by criticizing Fed Chair Jerome Powell—and even suggesting he might fire him. That sparked some concern about potential interference in the Fed's independence, which understandably makes investors uneasy. But by Tuesday, he walked that back, saying he doesn't plan to fire Chair Powell. And while that back-and-forth grabbed headlines, it's not exactly a new dynamic. These two have had a tense relationship for years, and similar threats were made during Trump's first term. Now, while some are worried about the possibility of Powell being removed, it's important to remember that the Federal Reserve is designed to operate independently from the White House. The chair can technically only be removed "for cause"— and historically, that high bar has been upheld. And even if a new chair is appointed after Powell's term ends next year, It's worth keeping in mind: the Fed chair is just one of 12 voting members on the Federal Open Market Committee, which makes key decisions on interest rates and monetary policy. And lately, those decisions have been pretty unanimous—so, a leadership change likely wouldn't lead to a major shift in direction. In our view, this is the kind of dramatic headline that tends to pop up during market pullbacks. It makes a splash, but it's not a fundamental threat to stocks.

Finally, checking in on earnings season.

First quarter earnings season is in full swing, and so far, expectations are pointing to growth across most sectors— with Technology and Health Care leading the charge. If those estimates hold, this would mark the seventh straight quarter of earnings growth. Companies have benefited from steady global economic expansion in recent years, and we believe that trend can continue into 2025— even with concerns about tariffs or a possible recession. Now, some investors are zeroing in on earnings misses and cautious guidance from certain companies. But it's important to keep perspective. Markets are forward-looking. They tend to quickly price in widely known information, and stock movements often happen well before the final earnings numbers are in. So, while earnings are worth watching, they're just one piece of the bigger picture. It's equally important to consider the other key drivers we talked about earlier, like politics, sentiment and the broader economic backdrop. Taken together, we still see a supportive environment for stocks as we look ahead. And that's it for this week.

Thank you so much for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit fisherinvestments.com anytime for our latest thoughts on markets.

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