Investors were given a reality check on Thursday regarding market stability as U.S. President Donald Trump's tariff decisions continue to impact earnings and the overall economy, posing a threat to equities. Although there was initial relief following Trump's decision to reduce some global tariffs, concerns arose due to the ongoing trade tensions with China, a key U.S. trading partner. Even with the 90-day postponement of significant tariffs in other regions, uncertainty still looms over the market.
According to Michael Brown, a senior research strategist at Pepperstone, while the worst-case scenario on trade has been avoided for now, the situation remains far from ideal. The market has now been infused with 90 days of considerable uncertainty. The S&P 500 experienced a 3.5% decline on Thursday, after a remarkable 9.5% surge the day before, marking its largest single-day gain since October 2008. Despite the recent upswing, the index is currently down 14.3% from its record high in February.
Although Trump's tariff adjustments may lay the groundwork for de-escalation, as mentioned by Angelo Kourkafas, a senior investment strategist at Edward Jones, a swift resolution is unlikely. Market volatility surged on Thursday with the Cboe Volatility index spiking to nearly 55 points, surpassing its typical long-term levels by threefold. This heightened volatility has not been seen to this extent since the onset of the COVID-19 crisis five years ago.
The significant market fluctuations since the announcement of Trump's tariffs in April have been evident. The S&P 500's 10.7% intraday range on Wednesday was one of the most considerable single-day swings in recent history. Following the index's near 20% decline from its peak in February, the market rebounded intensely, nearly confirming a bear market.
Sameer Samana, head of global equities and real assets at the Wells Fargo Investment Institute, suggested that investors who missed out on selling during the market decline might have used Wednesday's gains as an opportunity to sell off holdings on Thursday. The sell-off indicates a sense of uncertainty among investors, prompting them to secure profits in the face of unpredictable market conditions.