We’re halfway through 2025 and it’s already been a wild ride with market swings being driven by trade policy shifts (tariffs), geopolitical tensions, and shifting expectations around Federal Reserve policy. The easiest way to visualize this is by looking at the S&P 500, which is a broad index of US stocks and the VIX, which is the corresponding measurement of the Volatility of those same stocks. For the VIX, the lower the number, the better the climate for long-term investing (think: buy and hold). We consider VIX at 0-19 very good. Once the VIX breaks through 20, we start to get cautious, while at 30 and above the markets start to really feel pain.
A Good Start:
The year began on a strong note, with the S&P 500 climbing steadily and hitting a record high of 6,144 on February 19. Market optimism was driven by stable inflation trends (slowing inflation) and solid corporate earnings that were expected to get a boost with the new Administrations promises to cut corporate taxes and regulation. The VIX remained subdued in this period, averaging in the low-to-mid teens. This is right where our investing process would like to see the Volatility range.
A Steep Drop:
However, we saw that all reverse in mid-February as Volatility began rising as the market began digesting possible tariff news. Volatility then spiked in March as President Trump announced new tariffs on imports from China, Mexico, and Canada. The initial 5–6% drawdown worsened in early April when a sweeping expansion of tariffs (Liberation Day) were rolled out. These measures covered nearly all remaining imports, stoking fears of global trade disruption and economic slowdown. I vividly remember watching the market was responding positively at the beginning of the press conference until that, now famous, chart (pictured below) came out – equities almost immediately started to fall!
Between April 2 and April 9, the S&P 500 dropped nearly 12%, with some of the steepest daily losses since March 2020 (COVID). The VIX surged above 50 during this period, and the average intraday swings exceeded 160 points—more than double the norm. Global Investors feared not only the inflationary effects of tariffs but also the potential for retaliatory measures from key trading partners.
A Quick Pop:
After the severe pullback, the Administration began rolling out tariff pauses as trading partners began negotiations. The market rebounded sharply in May and by the end of the month, the S&P had recovered nearly 9.5% from its April lows. The VIX subsided to around 20, signaling a return to relative normalcy. Investors began discounting the likelihood of a near-term recession, encouraged by resilient labor markets and slowing (but not reversing) inflation.
This recovery came in spite of uncertainty around the Federal Reserve’s next move. While initial expectations for rate cuts had been pushed back, the absence of further inflation shocks gave markets room to recover. Still, with inflation worries subsiding, interest rates began an upward move as recession fears subsided.
The Israel-Iran conflict had escalated rapidly, raising concerns about oil supply disruptions and potential inflationary ripple effects, but with little negative effect on stocks. Although Volatility could rise again notably if oil prices surged and inflation reignited, markets have not only shown resilience but have pushed to new all time highs.
What does past Volatility matter to our future returns?
In truth, it serves more as a valuable lesson than a forecast—reminding us how swiftly markets can change course. At WNY Asset Management, we keep a close watch on both the economy and market fluctuations. Our team actively monitors volatility and makes thoughtful adjustments to your portfolio when needed. In times of uncertainty, you can rest assured knowing we’re at the helm, focused on your long-term financial well-being.