After its best week in nearly two years, stock market volatility continued as Trump’s latest tariff plans and Federal Reserve Chairman Jerome Powell’s cautious outlook on the economy did not provide investors with more clarity on the road ahead.
In a speech on Wednesday, Powell warned that Trump’s economic policies could pose stagflation risks. Powell’s comments sent stocks tumbling, with the benchmark S&P 500 index (^GSPC) plunging more than 2%.
Wednesday’s decline disrupted an otherwise stable environment in financial markets after the “Liberation Day” incident caused market turmoil earlier this month.
All three major indexes closed lower in holiday-shortened trading this week.
Adding to the market’s volatility, President Trump further pressured Powell in comments online and at the White House on Thursday.
“If I wanted him out, he would be gone very quickly, believe me,” Trump said. “I don’t think he’s doing a good job. He’s coming in too late. It’s always too late.”
Trump’s comments came after Powell poured cold water on a possible “Fed put” — the belief that the Fed will cut interest rates to support the market.
Bad news not fully priced in
Market sentiment has already collapsed under the weight of mounting uncertainty.
Risk indicators such as the CBOE Volatility Index (^VIX), often referred to as Wall Street’s fear gauge, have surged to levels not seen since the 2008 financial crisis and the 2020 coronavirus-induced market crash, and further market turmoil is likely in the days and weeks ahead.
“Investors are anxious,” Stuart Kaiser, head of U.S. equity trading strategy at Citi, wrote in response to recent market volatility. Kaiser later told Yahoo Finance on Thursday that the message from markets this week was clear: “We are not out of the woods yet… and the bad news has not been fully priced in.”
“The headlines we’re seeing seem rather bland,” he said. “Even Chairman Powell gave a textbook answer yesterday: Tariffs are bad for growth. They’re going to drive up inflation — and the market still sold off on that.”
In other words, investor sentiment is so fragile that even familiar warnings can trigger overreactions, suggesting that uncertainty still dominates the market narrative.
Before the latest round of Fed drama caught investors’ attention, costly new restrictions on chip exports to China announced on Wednesday weighed on tech stocks, especially artificial intelligence leader Nvidia (NVDA).
Nvidia said in a regulatory filing late Tuesday that the restrictions would cost the company $5.5 billion in the first quarter, sending its shares tumbling 7% on the news. On Thursday, the company’s shares fell another 3%, wiping out more than $250 billion in market value.
“Tariffs have an impact on their own, but they also create uncertainty,” Blake Gwynn, head of rates strategy at RBC Capital Markets, told Yahoo Finance Morning Edition on Thursday.
“Even if you may not be directly impacted by the tariffs that are in place, will you buy new equipment? Will you hire new employees? Will you lease new land, expand your business? It’s like squeezing toothpaste back into the tube. It’s hard to squeeze it back into the tube.”
Wall Street strategists say encouraging progress in trade talks is the most likely catalyst for the recent market rebound.
“We need to see some good news on tariffs, especially from our major trading partners,” Keiser said. “If you see good news like this, I think the market will say, ‘OK, here’s the strategy for how things will play out over the next three months.’”
For now, though, any kind of clarity — positive or negative — could help stabilize stocks.
“Market participants can deal with certainty,” Fabio Natalucci, CEO of the Anderson Institute for Finance and Economics and former deputy managing director of the International Monetary Fund, told Yahoo Finance on Thursday. “If you know tariffs are going to go up, you can rebuild supply chains, you can plan, you can invest.”
“The biggest obstacle right now is uncertainty,” Natalucci added. “You don’t know what the final outcome is going to be.”
