Tariffs Overshadow Strong Jobs Report
Mortgage Rates Fall As Economic Fears Rise
A better-than-expected March jobs report took a back seat to the volatile market response following the latest tariff announcements. Equity markets are experiencing heightened volatility as strategists attempt to assess how U.S. tariffs—and retaliatory measures—will unfold in the coming weeks. One big potential consequence of a trade war is triggering a global recession. There is growing concern that a trade war could lead to stagflation—a slowing economy paired with rising costs.
It remains unclear whether the goal of the tariffs is to bring other nations to the negotiating table for improved trade agreements with the U.S. or if they represent a more permanent shift in trade policy. We hope for the former and that these tariffs serve as leverage to secure better trade deals, ultimately benefiting U.S. trade relationships.
High Volatility
The market’s current anxiety is best exemplified by the VIX above 40 and CNN's Fear & Greed Index at a reading of 4, which is an extreme fear level. While it's uncertain whether last week's developments fully justify this level of negativity, there is a sense that automated trading is amplifying market swings. Wall Street has a reputation for punishing retail investors during periods of heightened volatility.
A look at the 2-year Treasury note suggests the market is pricing in upcoming Fed rate cuts. Despite the Fed Chair downplaying this possibility, the probability of cuts appears to be rising. Long-term inflation expectations are also falling. Significant equity losses and weakening consumer confidence weigh heavy on sentiment. We expect inflation to decline rapidly, driven by reduced government spending and a shift in consumer behavior following major wealth erosion. Lower interest rates are likely to follow.
Positive Outlook for Residential Mortgage Rates
Mortgage rates are improving across the board, benefiting from equity market volatility as banks reprice downward. Many loan products are now offering rates below 5%, which should enhance affordability for homebuyers and incentivize refinancing, particularly for cash-out borrowers. Sellers may also be more willing to reduce home prices amid recession concerns, a desire to raise cash, or a need to lower housing expenses.
Caution for Commercial Real Estate
Unlike the residential market, commercial real estate may not see the same relief. Widening spreads—particularly in high-yield markets—are concerning and should be closely monitored. Riskier segments of the commercial real estate market may face higher borrowing costs and diminished investor appetite if spreads continue to widen and delinquencies rise.
