Tariffs and Lower Rates – will it last?

Tariffs Hit Hard: What’s Happening to Bonds, Stocks, and Rates?

Hey everyone, as you’ve probably noticed, the tariffs dropped yesterday, April 2, 2025, and the markets are feeling the heat today. The bond market’s climbing, the stock market’s tanking big-time, and everyone’s wondering what’s next. Let’s break it down - what these tariffs mean for bonds and stocks right now, what might happen if we negotiate a “fair trade deal” (whatever this administration decides that looks like), and whether this is a short-term blip or a long-term shift. My clients always want the real scoop, so here’s my take - skeptical as ever about politicians but hopeful for some clarity on rates and markets.

The Immediate Hit: Bonds Up, Stocks Down

Yesterday’s tariff announcement, a 10% baseline on imports with steeper hikes for some countries, sent shockwaves through the financial world. The stock market’s down big today, with major indices like the S&P 500 and Nasdaq likely shedding 3 - 5% (based on early chatter and historical patterns). Why? Tariffs mean higher costs for companies - think Apple, Nike, or anyone with global supply chains. That squeezes profits, spooks investors, and triggers a sell-off. Uncertainty about retaliation from countries like Canada, Mexico, or China only fuels the fire.

Meanwhile, the bond market’s loving it. Yields on the 10-year Treasury probably dipped to around 4% or lower - as investors flock to safe-haven assets. When stocks get shaky, bonds get cozy. Lower yields mean higher bond prices, so bondholders are sitting pretty for now. But it’s not all rosy: those lower yields signal worries about economic growth slowing down, not exactly a cheerful vibe.

What’s Driving This?

Tariffs are a tax on imports, and this administration’s pushing them hard to level the trade playing field, or so they say. On one hand, I get it: fair trade sounds great if we’re getting shortchanged. Conversely, I don’t trust politicians to define “fair” without some angle. Currently, markets are pricing in the worst-case scenario: higher costs, disrupted supply chains, and maybe even a trade war if other countries clap back with their tariffs. That’s why stocks are diving, and bonds are the go-to comfort blanket.

The bond market is also betting on recession vibes. If growth stalls, the Federal Reserve might cut rates to juice things up, which keeps yields low and bond prices high. Stocks, though? They hate uncertainty - especially when earnings could take a 2 - 3% hit, as some analysts are guessing.

If We Pull Back: The Fair Trade Deal Scenario

Let’s say the U.S. negotiates with our trade partners and lands what the administration calls a fair deal - maybe lower tariffs or concessions on immigration, defense spending, or drug trafficking (the usual bargaining chips). What happens then?

• Stock Market Bounce: If tariffs ease, stocks could rally. Companies would dodge the full brunt of higher costs, and investor confidence might creep back. We saw this in 2019 after the U.S.-China Phase I deal - global equities, including the S&P 500, jumped 20 - 30%. A quick resolution could limit the damage to a short-term dip, maybe a month or two of pain before a rebound.
• Bond Market Cool-Off: Bonds might lose some steam. If growth picks up and recession fears fade, investors could ditch safe havens for riskier assets like stocks. Yields on the 10-year might climb back to 4.3 - 4.5%, dropping bond prices slightly and pushing interest rates up.
• Rates Outlook: A deal could nudge higher interest rate expectations. If the Fed sees growth stabilizing, they might pause rate cuts or hint at hikes if inflation ticks up from lingering tariff effects. Mortgage rates, tied to those Treasury yields, would follow suit - something to watch if you’re house-hunting.

Short-Term Pain or Long-Term Shift?

Here’s where it gets tricky. The hit might be short-lived if these tariffs are a negotiating tactic, like Trump’s 2018 - 2019 playbook. Markets could steady by summer if deals get inked fast. Historically, tariff shocks fade in weeks unless they stick around or escalate. But if talks drag on or retaliation spirals, we’re looking at a longer slog - think 6 - 12 months of volatility. Inflation could creep up (higher import costs don’t vanish overnight), pushing rates up and keeping stocks jittery.

I’m torn. Fair trade matters and nobody wants the U.S. to be a doormat - but ruffling feathers with unpredictable tariffs feels like a gamble I wouldn’t take with my own money. Politicians on all sides are tough to trust, and this administration’s “tough love” approach could either pay off or backfire. For rates short, I’d bet on lower yields as markets digest the chaos. Long-term, it hinges on negotiation speed and scale - successful deals could lift rates back up as confidence returns.

Now may be the best time for your fence-sitting buyers to buy before settling in, and rates increase! I still see rates going lower over time, but the current economy does not yet warrant a rate cut and lower mortgage rates. This is kind of a gift, albeit a weird gift with lower rates for now!

What It Means for You

For my clients, here’s the takeaway:

• Stocks: Brace for choppiness. If you’re in tech or retail, this could sting short-term - diversify if you’re nervous.
• Bonds: A safe spot now, but don’t expect those low yields to last if trade tensions ease.
• Rates: Borrowing might stay cheap for a bit, but a fair trade deal could nudge mortgage or loan rates higher by year-end.

I’ll keep watching the headlines - tariffs, negotiations, Fed moves - and update you as this unfolds.

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

We have been at the lowest levels since October, but we have a way to go to last year’s September lows! My Goal is to get where we were in 2020!

• We offer 12-day escrows for pre-approved buyers - Conventional/FHA/Jumbo/Bridge loans.
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Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:**   –

Soltice North – They are now FHA-approved and Fannie-approved!

Canyon Park Carriage – Approved by Fannie Mae until 7/9/2025

Bella Ventana – Approved! YAY! They just got their insurance deductible corrected, so we sent the info to Fannie, and they have been removed from Fannie’s list and will be off my naughty list! By the way, this was spearheaded by a real estate agent that lives in BV!

**Bad News for Condos***

Las Ventanas – Insurance is the main culprit here!

Soltice South – They let their Fannie Mae approval expire; therefore they are no longer Fannie-approved!

The full state of California naughty list has been added to MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow!