Beneath Market’s Uneasy Calm, Dread Runs Deep Across Wall Street
April 17, 2025
(Bloomberg) — It was an unexpected, if improbable relief. The panic unleashed by Donald Trump’s trade war, which convulsed financial markets around the globe and sowed doubts about America’s standing in the world, died down nearly as quickly as it began.
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The S&P 500 Index — after swinging more than 10% in a single day as volatility hit levels not seen since the pandemic’s onset or the 2008 credit crisis — this week settled into something of an uneasy calm. The VIX Index, or fear gauge, pulled back sharply from pandemic highs. And US government bonds once again reclaimed their longstanding role as the world’s “risk-free” asset.
Yet all across Wall Street, from bond-trading desks and corporate C-suites, to hedge funds and independent research firms, there’s a deep-seated sense of foreboding that it can’t possibly last — and that with a single social-media post by the US president it could all rapidly go awry.
On Thursday, Trump put the market, once again, on tenterhooks heading into the long weekend after asserting that he could oust Federal Reserve Chair Jerome Powell if he doesn’t lower interest rates, and casting doubt on the central bank’s independence.
“This is just one guy controlling trillions and trillions and trillions of dollars,” said Scott Ladner, chief investment officer at Horizon Investments. “We have never really seen anything to this extent — ever.”
Backpedaling
By backpedaling on his most punitive tariffs, signaling his willingness to negotiate with America’s trading partners, and then holding back from further escalating, Trump pulled markets back from the brink and restored a semblance of normalcy.
The about-face came after waves of frantic selling sent Treasury yields surging last week, which threatened to upend the economy and fanned fears that his policy priorities would irreparably fracture both America’s alliances and its standing as the preeminent destination for global capital.
But his chaotic, on-again, off-again effort to single-handedly rewrite the rules of global trade that have prevailed for decades — and his initial indifference to the market meltdown it set off — has undermined confidence in the direction of the US economy, and by extension, where asset prices of all kinds are headed.
“The market has a lot of excess fear,” said Jay Genzer, founder and CIO at Thames Capital Management LLC. “We’ve seen the massive event but there’s a lot to be nervous about.”
Trump’s push to increase levies on imports to the highest in over a century is almost certain to deal the nation another inflation shock and slow a resilient US economy that in recent years has powered much of the world’s growth. His decision to pause some of his highest levies for negotiations — even as he kept steep ones on China — has only added to the uncertainty.
Recent earnings reports, which usually provide stock-market reality check, underscored how much the outlook has shifted in a matter of weeks. Those from banks like Bank of America Corp. and JPMorgan Chase & Co. showed business held up well during the recent quarter, thanks in large part to still-healthy consumer spending.
Wide Range
With consumers worried about the impact of Trump’s tariffs and businesses in wait-and-see mode, though, there’s little clarity about where profits are headed. United Airlines Holdings Inc. took the unusual step of issuing two forecasts, seeking to reassure jittery investors that it would still earn solid profits even if there’s a US recession.
Bob Doll, the chief executive of Crossmark Global Investments, is contending with similar doubts. Usually, he said, he can entertain a relatively narrow range on his calls for where the stock market is heading. On Wednesday, though, as the S&P 500 held around 5,350 — he said it could tumble down to near 4,000, or jump back to 5,800, depending on whether the US dodges a recession or not.
“You can drive a truck through that range,” he said.
Wall Street strategists have been ratcheting down expectations for US equities. Citigroup Inc. joined others that are growing more cautious on the outlook. But, on the whole, such forecasters remain relatively optimistic, with the average estimate implying bounceback by the end of the year.
Raheel Siddiqui, a senior strategist at Neuberger Berman, said as deep as the stock market’s slide has been, it’s still not pricing in the risk that Trump is willing to endure a temporary recession to implement an agenda he hopes will revive the nation’s manufacturing industry.
“When we look at the US stock market, we don’t see recession priced in,” he said. “When a president says ‘recession so what, short-term pain, long-term gain,’ you don’t know to what extent he is willing to go. If he keeps going, at some point he will break the camel’s back.”
In the bond market, the selloff that raged last week has largely abated, sowing some optimism that it was driven heavily by the unwinding of leveraged positions and a hurried need to raise cash instead of a loss of confidence in the US government.
None of those concerns has gone away, however, with officials and investors continuing to express concern that the recent volatility is casting doubt on the US Treasury market’s status as a haven. Yet Trump’s decision to pause his tariffs just as the selloff was worsening provided some reassurance that he’s not willing to let the bond market sink too far.
“When you see the 10-year increase by half a percent over a very short period, it’s going against what the administration is hoping to accomplish,” said Scott Pike, senior portfolio manager at Income Research + Management. “It was not hard for the administration to take note of that and change course.”
Still, he said, the volatile selloff has left bond investors nursing worries about whether they’re being paid enough for the risks now hovering over the Treasury market.
“It’s going to take a while for concerns around that to move lower,” he said.
—With assistance from Ye Xie, Matt Turner and Jeran Wittenstein.
(Previous version corrects day of Trump’s statements in seventh paragraph.)
