By Jamie McGeever
ORLANDO, Florida (Reuters) – TRADING DAY
Making sense of the forces driving global markets
If this is what U.S. Treasury Secretary Scott Bessent’s “detox” period for the economy looks like, investors are in for a serious amount of pain.
The Wall Street selloff that has been snowballing recently on growth and trade war fears resulting from President Donald Trump’s tariffs is turning into an avalanche, with the three main U.S. indices on Monday sliding between 2% and 4%.
Big tech and big banks were among the biggest decliners, and the Nasdaq’s 4% fall was its steepest in two and a half years.
Bond yields fell sharply and markets are now pricing in a roughly 50-50 probability of the Fed cutting rates in May. The Fed meets next week and is widely expected to keep rates on hold, but more days like this on Wall Street and everything is on the table.
Markets around the world will feel the whiplash on Tuesday, with Asian and global indices already reeling from shock figures from Beijing over the weekend that showed deflationary pressures in China are intensifying.
U.S. recession fears are rising fast. Even if the Atlanta Fed’s GDPNow model showing deep GDP contraction in the first quarter proves to be wrong – many analysts have questioned its inputs – the fog of economic uncertainty is thickening.
Not everything is falling, of course. The price of U.S. Treasuries jumped again on Monday, and indices of implied volatility across asset classes are also spiking higher. Indeed, a perfect storm is brewing that could trigger an even greater surge in volatility – more on that below.
Today’s Key Market Moves.
U.S. recession risk the tinder for smoldering market volatility
Financial market volatility has bubbled up to its highest level this year thanks to the chaotic implementation of U.S. President Donald Trump’s protectionist trade agenda. While volatility hasn’t boiled over yet, investors would do well to guard against complacency, because tariff fatigue may push it over the edge.
Implied volatility in the S&P 500 as measured by the VIX index – Wall Street’s so-called fear index – is now the highest since the Fed cut interest rates in December, a decision markets interpreted as a mistake at the time. The VIX has almost doubled in the last month, and on Monday the three-month VIX spiked to its highest since August.
The ‘MOVE’ index of implied volatility in the U.S. Treasury market is also the highest in four months, which is especially notable as it is accompanying a rally in Treasuries prices rather than a bond market selloff and rise in yields.
Volatility is still well below levels associated with past market crises, or even recent episodes like the 2023 U.S. regional banking panic or Japan’s yen carry trade shock last August. Its recent rise certainly hasn’t matched the ongoing surge in policy uncertainty which, by some measures, has never been higher.
Analysts at JP Morgan put this suppression of volatility down to retail investors’ willingness to ‘buy the dip’, which has provided a “persistent backstop” to equities, the rise of ‘passive’ equity investing over ‘active’ management, and the strength of investor and corporate balance sheets.
They note that since the S&P 500’s peak on February 19, U.S. equity ETFs have only recorded one day of net outflows. Cumulative inflows over the period have exceeded $30 billion, which has helped limit the broader market decline.
But based on White House statements over the past few days and intensifying market ructions, it’s possible we’re soon going to see a true spike in volatility as investors start to question whether ‘buying the dip’ is such a good idea.
‘DETOX’ PERIOD
Warnings about further market turbulence are now coming from on high. U.S. Treasury Secretary Scott Bessent said on Friday that the economy is entering a “detox” period, and Trump declined to rule out a recession in an interview with Fox News broadcast on Sunday.
Trump, who tweeted more than 150 times about the rising stock market during his first term, also said on Friday that he’s “not even looking at the market” and that there will likely be some “disruption” as his tariffs are implemented.
He’s not wrong there.
The so-called “Trump bump” is long gone. The S&P 500 is lower than it was before his November 5 election win, and is now down nearly 10% from last month’s high and close to official correction territory. The Nasdaq is already in a correction, and has lost 14% in just three weeks after slumping another 4% on Monday.
And even if recession risks flagged by some GDP models prove to be unfounded, the economic outlook is still darkening rapidly. Economists at Morgan Stanley just cut their 2025 GDP growth forecast to 1.5% from 1.9%, and economists at Goldman Sachs trimmed theirs to 1.4% from 2.4%.
Economic growth at these below-trend rates is unlikely to sustain current equity valuations, hence the repricing currently underway, and the growing tariff fatigue should only exacerbate this downturn.
Every tariff announcement from Trump moving forward – whether it’s an unveiling, pause or exemption – is likely to be met with a selloff on Wall Street. If he doesn’t pull back, stocks fall on the feared economic impact; if he does pull back, stocks fall on the resulting chaos, confusion and uncertainty.
“Trump’s leverage credibility with tariffs is quickly eroding,” says Alfonso Peccatiello, chief investment officer at Palinuro Capital.
The volatility dam has, by and large, held. But pressures are building. Investors may need to seek cover.
What could move markets tomorrow?
If you have more time to read today, here are a few articles I recommend to help you make sense of what happened in markets today.
I’d love to hear from you, so please reach out to me with comments at . You can also follow me at [@ReutersJamie and @reutersjamie.bsky.social.]
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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(Writing by Jamie McGeever; Editing by Bill Berkrot)
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