We recognise that periods of market turbulence are worrying for clients and disruptive to normal operations for our adviser partners. As such we’ve compiled some talking points and resources to support you in your client comms.
In addition, please feel free to schedule 15-30 minutes with the team or request any specific data or analysis from our portfolios team.
Navigating volatility: Staying calm in the correction
After another turbulent day in equity markets, it’s clear that we’re firmly in correction territory. While volatility continues to grip the markets, recent signs of buying suggest that some investors may be reassessing their positions and beginning to identify opportunities amid the chaos.
The market has endured significant swings, with some of the sharpest moves in recent history. The S&P 500 has seen a steep decline, echoing patterns seen during the most unsettling moments of past crises. While this volatility has triggered fears of a deeper downturn, it’s important to remember that extreme market sell-offs though unsettling are typically the worst time to panic out of the markets.
What’s behind the volatility?
The root cause of the current market turmoil is complex, but at its core, it stems from a policy-induced shock. The surprise announcement of higher tariffs than forecast and the uncertainty surrounding future trade negotiations have rattled investor confidence. This uncertainty, compounded by concerns over inflation and slowing economic growth, has added to the volatility.
However, it was only a couple of months ago that the economic picture looked very robust with corporates and consumers awash with cash. So let’s keep things in perspective: we did enter this period from a position of strength, although the tariff wars have the potential to quickly evolve into broader economic pain. But, we’re not yet facing the same deep, structural imbalances that triggered past crises, such as the Global Financial Crisis or the Covid lockdowns. The labour markets still remain steady, consumer sentiment may be weak but spending continues to show resilience, gas prices have fallen and business investment may have only been postponed rather than abandoned. The current disruption is primarily policy-driven, a shock that while painful, could be addressed through well-targeted policy adjustments.
Why not panic out?
It’s easy to act impulsively during volatile times, but history has shown that pulling out of the market during periods of fear can be costly. Investors who sold during past market crises such as the 2008 Financial Crisis or the Covid crash must surely regret their decision now. The key takeaway here is that, once out of the market, it’s incredibly difficult to time the rebound and re-enter at the right moment.
The current environment, though turbulent, is not the end of the market cycle. In fact, it could be the ideal time to adopt a contrarian approach. When the Fear & Greed Index is deeply entrenched in “fear” territory (currently at one of its lowest levels), it often signals that the market is oversold and could be primed for a recovery once the dust settles. This “wash moment,” as some call it, tends to be where the potential for significant gains lies.
The Fear & Greed Index, which tracks a range of market indicators such as volatility, stock price breadth, and safe haven demand, is flashing extreme fear right now.
Historically, when this index drops below 10, it’s coincided with major market bottoms, like those in March 2020 and December 2018.
This suggests that we’re in the midst of a sentiment-driven reset, rather than a structural collapse.
The road ahead: A cautionary note
The challenge, is that it’s unclear how President Trump can change direction without significant political consequences. Most developed economies, particularly the US’s trading partners, do not impose exorbitant tariffs on US exports, leaving little room for meaningful concessions. This creates a difficult situation for Trump, who now faces the prospect of backing down without anything to mitigate a major loss of face. As we’ve seen in Canada, where Trump’s aggressive policies have unexpectedly strengthened opposition forces, retaliation is politically popular and difficult to walk back.
There’s also the rising risk that, even if Trump does back down, the US and much of the global economy may have already crossed a critical point what economists refer to as the “event horizon”. This is the point at which a recession becomes inevitable, regardless of any subsequent policy adjustments. It’s a reality we must factor in as we assess the trajectory of both US and global growth. The good news is that we’re not heading into a recession triggered by systemic imbalances. The economy is not broken yet, although it’s getting beaten up. We are experiencing a sharp reset, one that could set the stage for long-term growth once the policy landscape clears up.
In the meantime, we continue to monitor developments closely. The future remains uncertain, but there is still potential for recovery. We have already made adjustments to the portfolios earlier in the year, reducing risk exposure and increasing geographical diversification. While we remain cautious in the short term, we are poised to act quickly should conditions improve.
The key takeaway: stay invested, stay calm, and keep your focus on long-term goals. While the road ahead is bumpy, there are still opportunities for those prepared to weather the storm.
This content is intended for financial professionals only. These are the author’s views at the time of writing and may be subject to change. This content is not intended to provide the basis for any investment advice or recommendation. Any forecasts, figures, opinions, tools, strategies, data, or investment techniques are included for information purposes only.
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