Market Update: 5 Insights on Navigating Market Volatility

After a period of relative calm, volatility has come roaring back. Since the April 2nd tariff announcements, the S&P 500 has clocked average daily swings of over 5%, marking one of the most volatile stretches not seen since the COVID shutdown. While it’s unclear whether the worst of the proposed trade policies has already been priced in, one thing is certain: volatility is likely here to stay for now. Here are a few reminders during times of elevated market stress.

1. Diversification is working again

As mentioned in our previous article “The Great Rotation”, growth-oriented large-cap equities which are often concentrated to a couple of names have not led the market this year. Portfolios with a mix of international and high-quality large-cap value stocks have held up relatively well compared to the tech-heavy NASDAQ. Interestingly, the bond market has remained resilient this year despite recent whipsaw movements, offering an additional layer of stability for diversified investors amid broader market volatility.

2. Corrections are normal

Investing in stocks has historically been one of the most effective ways to create wealth over the long term. However, the short term can be unsettling. A 10% pullback occurs, on average, every year. The S&P 500 has already tested bear market territory briefly on Monday. If it held, it would’ve signaled the start of the third bear market in the last five years. Still, since 2020, we have seen an incredible runup of over 60% in the S&P 500 as of Wednesday. While the recent drops seem daunting, it is encouraging to remember that not all bear markets necessarily lead to a recession and most are followed by a strong recovery in equity prices, especially when underlying economic data remains robust.

3. Focus on the Data

We continue to take a data-driven approach. While tariff talks have dominated headlines, underlying data has been consistently healthy. From an economic standpoint, inflation continues to cool. From the business standpoint, corporate profit margins are still hovering around all-time highs and profits are still expected to report year-over-year growth for Q1. We continue to see fundamental strength in job creation, corporate cash flows, and household savings. The size and impact tariff news will have on corporate profits will depend on how long policy ambiguity persists.

4. A fluid situation

With an effective tariff rate around 10%, down from over 20% after Wednesday’s 90-day pause, many economists can agree that the broad impacts can be destructive towards the trajectory of growth, inflation, and importantly executive decision making. Luckily, it seems as though nothing has been set in stone. Equity markets are often seen as the ultimate discounting machine, possibly already pricing in a worst-case scenario in anticipation of prolonged trade tensions. Given the fluidity of the current situation, a sharp reversal in equity prices may be triggered if President Trump continues to update his policy stance, more countries come to the negotiation table, or the Federal Reserve steps in to explicitly or implicitly stimulate markets. We also can’t overlook the fact that Trump has yet to deliver on his “pro-business” agenda, which includes a slew of deregulatory policies and tax cuts that have seemingly gone to the wayside due to preoccupation with trade policy.

5. Better outlook ahead

Historically, markets tend to rebound within 12 months of a 10% correction. In fact, the average return coming out of a 10%+ correction for the S&P 500 is around 14%, given we do not enter a bear market. Even if we do enter one, the duration is typically less than one half the length of the average bull market; something we observed closely during the pandemic in 2020 in which the bear market lasted merely 33 days. While no one can confidently predict the direction of markets, now is not the time to sell.

Staying clear-headed during emotionally stressful times takes patience and preparation. Rather than reacting to daily portfolio fluctuations, it’s better to have a plan in place before volatility strikes. Talk to our wealth managers today to review your financial plan.

Written by: Kyle Kong, Portfolio Administrator 4/10/25