Volatility eases, but uncertainty lingers
After weeks of sharp market swings, last week offered a brief—if uneasy—pause. But beneath the surface, investor anxiety remains high—and much of it stems not from economic fundamentals, but from the widely noted pattern of abrupt and shifting U.S. policy decisions that are challenging the global economic order investors have relied on for decades.
Chief Investment Officer Thierry Hasse
Markets Catch Their Breath—For Now
Following one of the fastest corrections on record—from the S&P 500’s peak on Feb. 19 to a 20% drop by April 7—markets seemed to settle somewhat last week. The S&P 500 ended down a relatively modest 1.5%, and intraday volatility calmed from the extremes seen earlier this month, which rivaled the chaotic early days of the COVID-19 pandemic.
Bond markets also steadied, with the 10-year U.S. Treasury yield hovering around 4.35% after a dramatic surge the week prior. On the surface, it looked like a return to normal. But investor confidence remains deeply shaken. Many market participants believe that a single tweet or offhand remark from the administration could reignite volatility at any moment.
Fed Under Fire
Federal Reserve Chair Jerome Powell addressed the Economic Club of Chicago last Wednesday, stating that current monetary policy is “well positioned.” He emphasized the need for clarity on whether the administration’s sweeping tariff actions would cause only a temporary uptick in inflation or something more lasting. His comments suggested that the Fed is not inclined to intervene prematurely, preferring instead to wait for greater certainty.
That measured tone was not well received by the White House. Public discussion of Powell’s potential dismissal followed swiftly. While the market has long speculated about the “Fed put”—the assumption that the central bank will step in to support markets during times of distress—last week made clear that such a safety net is not guaranteed. If the administration were to move forward with replacing the Fed chair, the result could be a dramatic selloff across both equity and bond markets.
Earnings Season—With an Asterisk
In most market cycles, strong quarterly earnings provide a dose of reassurance. Not this time. First quarter earnings reports are being dismissed mainly as outdated, as they reflect results achieved before the April 2 “Liberation Day” tariff announcement that upended investor expectations.
Executives also seem hesitant to offer meaningful forward guidance. In an unusual move, United Airlines issued two potential earnings forecasts: one assuming a quick resolution to the tariff standoff, and another reflecting a recessionary scenario. While the creativity was noted, the market wasn’t impressed—United’s stock is down roughly 31% year to date. (Source: Barron’s, United Airlines investor presentation)
What We’re Watching This Week
Investors are hoping that the upcoming wave of corporate earnings—more than 100 S&P 500 companies are scheduled to report—will shed light on how businesses are responding to this new economic environment. Unfortunately, we anticipate few definitive answers and even fewer bold actions. A “wait-and-see” posture seems likely to prevail.
Meanwhile, attention is turning back to the Treasury market. The U.S. government is expected to issue $10 trillion in debt this year: $8 trillion to roll over existing obligations and another $2 trillion in new debt to fund the current deficit. (Source: Barron’s)
Against this backdrop, rhetoric around removing the Fed Chair seems especially ill-timed. The U.S. needs to maintain the confidence of global buyers of its debt—something that can’t be taken for granted in the current political climate.
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