Tariff timeout doesn’t remove uncertainty but opens door to negotiation and de-escalation
The U.S. April 2 tariff announcement elicited responses from other countries, some of which chose to retaliate (China and Europe initially), while others chose to negotiate (Japan, South Korea, Vietnam). A tit-for-tat between the U.S. administration and China – each raising import levies in turn – fueled fears of an escalating trade war and rattled financial markets. The S&P 500 and TSX declined 12% and 11% respectively between April 3 -April 8, and the financial fallout spread to the bond market and the U.S. dollar1. But as stocks were on the verge of entering a bear market, the U.S. administration softened its approach, announcing a 90-day delay on the implementation of the “reciprocal” tariffs with the exception of China.
Whether the tariff turnaround was part of a greater plan, or a response to the increasing economic and market risks, it signals a pivot to a more conciliatory approach. The 90-day pause provides time for negotiations, potentially allowing countries to strike deals. Perhaps peak trade uncertainty is now behind us. However, businesses and investors are unlikely to get the clarity they seek right away. Negotiations will kick into high gear, but that process may take a while, and, in the meantime, there will likely be a mix of positive and negative headlines keeping volatility elevated.
Volatility near historic extremes, with more room to fall than rise
Historically, the average intraday move (difference between the daily high and low) for the S&P 500 has been around 1%. But since the higher tariff plan was revealed on April 2, the average intraday move has jumped to a jaw-dropping 7%1.
Highlighting the extreme market fluctuations and uncertainty, the volatility index (VIX), also known as the fear index, has spiked to the highest since the early days of the 2020 pandemic. The index has been that high only eight times in the past 35 years. Typically, it takes a while for volatility to return to normal, on average about eight months. But what history shows is that fear creates opportunities for those that follow a disciplined and patient approach. Once the VIX index has exceeded 43 (it reached a high of 52 on 4/8/25), forward six- and 12-month equity-market returns have been strong2. That is not because volatility itself is good, but because spikes in volatility tend to occur when pessimism is already priced in.
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