Another day of violent reversals on Wall Street, including one that took the S&P 500 to the brink of tripping circuit breakers, has laid bare the difficulties facing investors trying to navigate one of the least coherent trade policies in modern history.
U.S. stocks sank anew Thursday, 30-year Treasury yields spiked higher, oil tumbled and the dollar fell versus major peers. All of the moves ebbed and flowed in sometimes violent fashion as the session wore on. The S&P 500’s 3.5 per cent drop unwound nearly half the rally after U.S. President Donald Trump paused the harshest tariffs on most trading partners yesterday afternoon. Volatility gauges remained elevated.
The underlying cause of the market’s swings — uncertainty on Trump’s tariff initiatives and an escalating trade spat with China — remained. The White House confirmed Thursday China now faces a 145 per cent levy on all goods it sends to the U.S. Trump officials insisted negotiations with many countries were making progress, the White House offered no details or even the names of the partners involved.
“The root cause of all this turbulence is a deep disdain for U.S. assets across the board because of Trump’s trade policies, with investors revolting against everything,” said Scott Ladner, chief investment officer at Horizon Investment. “Supply chains are being scrambled — intentionally because of the White House — and it’s hitting the economy and profits outlooks for American companies. Yesterday was just a head-fake.”
A swift intraday drop in the S&P 500 took the index within 1 per cent of tripping market-wide circuit breakers that pause trading for 15 minutes. Stocks pared some of the losses, but still closed below session highs. It is down more than 7 per cent since Trump announced harsh tariffs on most of the world April 2 and some 14 per cent from its February record.
“Everyone chased as much as they’ll chase for now and you still have auto tariffs and steel tariffs and Trump reiterated there will be pharma tariffs soon,” said Michael O’Rourke, chief market strategist at JonesTrading. “You’re still looking at huge China tariffs. While we might have avoided a doomsday scenario people have shot their bullets already for the time being.”
For traders, the volatility left many unsure just how to position.
“You can’t have it both ways,” said David Wagner, portfolio manager at Aptus. “People just continue to get caught offside. It seems like that’s happening again, that people are getting caught offside with their positions.”
The S&P 500 surged more than 9 per cent Wednesday - the most in 17 years — marking a fourth straight day of intraday moves that topped 5 per cent. That stock volatility pushed the Cboe’s VIX past 60 at times, and the swings have made American equities more turbulent than Bitcoin.
The violent moves have been a fact of life for traders since Donald Trump’s inauguration in January. Getting steamrolled by a four-day, 12 per cent rout can be career-threatening. Missing a 9 per cent rebound, likewise.
The sharp rallies are especially important to get right. The S&P 500 is up 9.5 per cent a year on average in the past 35 years. Miss the 10 best days, though, and your return falls to a loss of 12.5 per cent, according to data compiled by Ryan Detrick, chief market strategist at Carson Group Holdings LLC.
It’s something that Dylan Bell, chief investment officer at CalBay Investments is grappling with.
“We’re long-term strategic investors, so our mindset is to definitely stay invested, to not miss out on those rebound days,” he said. But, “we’re not just going to sit on our hands and do nothing, we’ve made a couple tactical moves to get out of certain asset classes that we feel might not rebound as much as the rest of the market.”
His firm has trimmed positions in small-cap stocks, which would likely underperform in the event of a recession. It’s also bought into large-cap tech stocks as they led the market lower, especially ones that boast solid fundamentals.
“They’re great companies with lots of cash and good balance sheets, and we feel like we’re still in the early to mid innings of AI,” said Bell.
Investors who foresaw turmoil from Trump’s plans to upend global trading were at the vanguard of a rotation out of Big Tech in the first few months of the year. While that looked good as the Mag 7 plunged more than 25 per cent and the Nasdaq 100 slid into a bear market, anyone still shunning the likes of Nvidia Corp. and Apple Inc. missed Wednesday gains of 19 per cent and 15 per cent, respectively.
“We’re going to get caught off guard if this market goes back up because we’re underweight tech right now, and that’s exactly what we’re seeing,” Wagner said of Wednesday’s moves, adding that the strategy — which had been outperforming — still owned some of the highest-flying megacap names such as Nvidia.
On the other had, not going defensive at the start of the year - meaning rotating into energy, health care and financials - would’ve meant holding losing stocks during a drawdown that took the S&P 500 to the brink of a bear market. Investors have also been shifting positions outside of equities to further offset declines while maintaining income for clients.
“We did not change our positioning this week, but we have been making some changes over the past few months,” said Eric Sterner, chief investment officer at Apollon Wealth, adding that his firm has been shortening the duration of fixed income portfolios in anticipation of interest rate volatility and increasing allocations to alternative investments such as private equity and private credit.
“I was expecting heightened volatility with Trump coming into office and I wanted to increase the diversifications of our portfolios,” Sterner said. In the firm’s equity portfolios, they’ve increased exposure to quality companies with strong balance sheets and a track record of strong cash flows and earnings — ones that could withstand a possible economic downturn.
There’s also reason for optimism as a money manager, especially if equities break their lock-step moves and stock pickers can identify potential winners.
“This is where people who aren’t in our industry start to understand what’s difficult about it,” said Rob Conzo, CEO of The Wealth Alliance. “This is where you earn your stripes.”
--With assistance from Jessica Menton.
Carmen Reinicke and Esha Dey, Bloomberg News
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