LEVATUS Investments | Nuanced Catalysts Shape Recent Market Recovery and the Road Ahead
Everything should be made as simple as possible, but not simpler.
Albert Einstein (maybe)
Photo by Chor Tsang
The quote ‘Everything should be made as simple as possible, but not simpler’ is often attributed to Albert Einstein. It emphasizes the importance of simplifying complex concepts while retaining their core meaning. This means that when explaining something, the goal should be to make it as easy to understand as possible, but not to oversimplify it to the point where it becomes meaningless or inaccurate.
In early April global equity markets experienced a ‘growth scare’ brought on by tariffs. This spiked uncertainty about consumer spending, corporate investment risk, employment, and the impact of tariffs on corporate margins and earnings. Global markets sold off sharply. The swift and significant rebound since this early April swoon has been driven by an equally nuanced set of factors. These of course include the welcome roll-back of some of the most extreme tariffs, but the complete story is not that simple. Other meaningful factors have also been very significant in shaping the rebound, providing insights into the opportunities and risks ahead.
BOTTOM LINE
Skipping to the punchline, below is a summary of our view on the key takeaways from the sharp rebound in markets since April. It includes the implications of - how companies have responded in terms of investments and business operations, how consumers have responded in terms of spending, how markets have responded to risk factors, and how investors have responded in the face of great uncertainty - both actions taken and not taken.
April Recovery Drivers: The sharp April 2025 market rebound was fueled by the rollback of the most severe U.S. tariffs, the resilience of localized supply chains, AI infrastructure spending, and a fragile consumer confidence rebound.
Year-End Outlook: Supply chain shifts, AI-driven growth, and consumer spending held mostly steady despite April’s hurricane of uncertainty; this offers meaningful support to markets.
Key Risks: Global debt escalation, Japanese debt market dislocations, remaining tariff uncertainties, U.S. deficit pressures, consumer sentiment fragility, and raw material volatility threaten stability.
Investment Strategy: Prioritize quality companies that have financial flexibility. Emphasize secular trends within technology that are on a strong path toward shaping the future. Be careful of legacy companies that are set in their ways and at risk of becoming rapidly ‘disrupted’. Consider non-dollar denominated assets for protection and diversification. Maintain financial flexibility to navigate a volatile risk landscape.
FACTORS DRIVING THE APRIL 2025 MARKET RECOVERY
The following section unpacks the key drivers behind the recent market turnaround, setting the stage for an analysis of the forces likely to shape markets through year-end and beyond.
Rollback of Severe Tariffs
The partial rollback of U.S. tariffs in early April was a pivotal trigger for the market recovery. The easing of the most severe trade restrictions alleviated fears of widespread cost increases, boosting global trade sentiment. This led to a ~4% surge in export-heavy small-cap stocks and contributed to a 5% rise in broader industrial indices like the S&P 500 industrials.
Localized Supply Chain Resilience
Companies’ prior shift to regional production hubs further supported the rally. A 7% surge in Middle Eastern refining investments, particularly in hydrocracking catalysts (a key part of oil refining), stabilized energy supply chains, reducing exposure to trade disruptions. This resilience drove investor confidence, with industrial sectors gaining as markets rewarded diversified operations.AI Infrastructure Spending Surge
Hyperscalers’ significant capex commitments for AI data centers in 2025 sparked a tech-led rally. Unlike 2024’s speculative AI bubble, April’s gains were driven by tangible revenue growth in cloud computing and generative AI. The “Jevons paradox” - AI efficiency boosting usage, and lowering costs - fueled adoption, lifting semiconductor and renewable energy stocks by 5-7% and NASDAQ by 5%. (Note: energy is a big part of the AI story because of the high data center energy consumption.)Consumer Confidence Rebound
Despite a late-March dip, consumer confidence rebounded in April, supported by real wage growth. In the EU, 3.6% nominal wage increases began restoring 2021-2024 purchasing power losses, while U.S. retail sales rose 0.6% month-over-month, driven by durable goods. Consumer discretionary stocks outperformed by 3%, though sentiment remained vulnerable to lingering tariff concerns.
Consumer confidence is at its core a reflection of how safe people feel in their job. It is worth noting that despite headlines suggesting the potential for large layoffs, senior executives broadly feel that staffing is where it needs to be in the private sector. The government sector, however, faces headwinds.
GROWTH FACTORS LIKELY TO IMPACT MARKETS THROUGH 2025
The pockets of the economy that are most likely to amplify growth and stability in coming quarters are related to the pockets of strength that have led the markets’ rebound in April/May. The April sell-off provided a focused lens on high-impact secular trends that are likely to impact the economy and investment opportunities through 2025 and beyond.
Sustained Supply Chain Localization
The shift to North American and Southeast Asian hubs will continue to shield markets from trade shocks. The COVID pandemic and trade friction in President Trump’s first term set the wheels of supply chain diversification into motion years ago. However, volatility in raw material prices could pressure margins, necessitating vigilant cost management.AI-Driven Economic Expansion
AI infrastructure spending will sustain growth, with hyperscalers’ investments rippling into semiconductors, construction, and clean energy. Markets will reward firms with proven AI-driven revenues, making undervalued subsectors like AI software and renewables attractive.Consumer Spending Dynamics
Continued real wage growth will bolster consumption, with EU households projected to fully recover purchasing power by mid-2026, and US wage growth largely staying ahead of inflation. Yet, consumer confidence remains fragile, as seen in April’s volatility. Retail and consumer discretionary sectors could see gains if sentiment stabilizes, but policy shocks could disrupt momentum.Uncertainty
Uncertainty generally dampens broad growth. In this environment, it may also serve to dampen the inflationary impulse of tariffs.
EXPANDED RISKS TO MONITOR
The few disruptions to the market’s recent recovery have largely emanated from the debt markets. This is notable. Whether a - surge in long term rates in the U.S., poorly subscribed debt auction in Japan, simultaneous spike in long term rates across many global markets - debt has been a recurring theme. These debt dynamics have also seeped into volatility in currency markets as well. Throughout history, the most significant market pullbacks have often been associated with dysfunction in debt markets. We are particularly focused on dislocations in the Japanese debt market because of the significant leverage to this market across the global financial system. Key risks on our radar:
Global Debt and Deficit Dynamics
Global debt, projected by the IMF to hit $100 trillion (100% of GDP) by year-end, poses a systemic risk. The U.S. deficit, expected to reach 7% of GDP, could strain fiscal stimulus from tax cuts, raising borrowing costs and crowding out private investment. High debt servicing costs in emerging markets, particularly in Africa and Latin America, may trigger defaults, unsettling bond markets.Japanese Debt Market Dislocation
Japan’s debt market has faced recent volatility, with public debt at 255% of GDP. The Bank of Japan’s shift from ultra-loose policy pushed 10-year JGB yields to a decade high in April. This disrupted carry trades (carry trade: investor borrows money in a currency with low interest rates and invests the borrowed funds in a currency with higher interest rates, often with leverage), weakened the yen, and raised fears of global bond market spillovers. A disorderly unwind, as Japanese rates go from extremely low to high, could tighten liquidity, impacting risk assets. In August of last year, a similar scare out of Japan caused the Japanese stock market to decline 20% in one day.Remaining Tariff Uncertainty
Despite the tariff rollback, lingering uncertainties around U.S. trade policies continue to weigh on markets. Proposed secondary tariffs could raise input costs, particularly for small-cap and export-heavy firms, which remain vulnerable after April’s partial relief. The behavior of the administration in the past two months would indicate that tariffs are primarily being used as a negotiating tool, which would be less damaging to growth. The future behavior of the administration is difficult to predict, however.Consumer Confidence Fragility
April’s confidence rebound is precarious, with sentiment susceptible to tariff fears and inflationary pressures. A sharp decline could curb consumption, hitting retail and consumer discretionary sectors reliant on sustained spending.Raw Material Price Volatility
Price swings in catalyst raw materials, like platinum (up 12% since January 2025), threaten production costs, potentially destabilizing companies with energy-heavy input costs.
SUMMARY
The April 2025 market recovery, sparked by the rollback of severe tariffs, has also brought into view the value of localized supply chains, AI infrastructure momentum, and consumer resilience. While these factors provide a foundation for cautious optimism, significant risks remain. Escalating global debt, Japanese debt market volatility, lingering tariff uncertainties, and fragile consumer confidence are among them. Sustained gains by year-end hinge on catalysts outweighing these formidable headwinds. In the long term, however, powerful secular growth opportunities that are likely to define the next decade continue to be underscored - with productivity and efficiency potential driven by automation, digitization, deregulation, and the application of AI providing bright spots of opportunity even in the most difficult of markets.
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ABOUT THE AUTHOR
Susan Dahl is a seasoned executive, industry leader, and dedicated client advisor, with over thirty years of international and domestic investment experience. Susan is known for her ability to unravel complex questions, and has a steadfast commitment to well designed process. This background has translated directly into her work on investment process design for private wealth clients, as well the industry leading LEVATUS Integrated Wealth Service model; a modern design that addresses the many ways financial decision making impacts - financial security, relationships, and sense of purpose across generations. A deep and diverse background that extends from global investing, to risk management, to process development and planning, has laid the groundwork for an advisory solution that asks more of wealth. Susan shares some her most recent work in this TEDx , Can Happy Make You Money?
In early April global equity markets experienced a ‘growth scare’ brought on by tariffs. This spiked uncertainty about consumer spending, corporate investment risk, employment, and the impact of tariffs on corporate margins and earnings. Global markets sold off sharply. The swift and significant rebound since this early April swoon has been driven by an equally nuanced set of factors.