ClockWise: Navigating the tariff-related turmoil following US ‘Liberation Day’

Last week will be remembered as one of the wildest weeks in stock market history. News flow on tariffs between the US and its global trading partners dominated and led to severe swings in stock prices.

Intraday moves in the S&P 500 of 6% were recorded for five consecutive days following ‘Liberation Day’ which is the third longest streak in history. While US equity markets actually closed higher last week, volatility remains elevated.

Policy and trade policy uncertainty have been at high levels ever since President Trump won the US election last year, but in recent weeks news-based measures of policy uncertainty (Chart 1) have moved to extreme levels. This uncertainty is now having a severe knock-on effect to equity market volatility.

Chart 1: US Policy Uncertainty index and VIX

Source: LSEG Datastream as at 15 April 2025. VIX is an index created by CBOE Global Markets, which shows the market's expectation of 30-day equity market volatility.

The wild moves in stocks have gone both ways. In addition to sharp declines, last week’s returns also included the tenth largest one-day rally in S&P 500 history (going back to 1928). The mood music lifted in the second half of the week, with Trump’s 90-day pause on reciprocal tariffs (excluding China) then followed over the weekend with a reprieve for certain electronic goods (including China at least part-way). There has also been a growing sense of positivity around bilateral negotiations from the US administration. National Economic Council Director Hasset this week commented that there were “more than 10 deals where there’s very, very good, amazing offers made to us”. This has helped spark a recovery in stocks from last week’s lows, with the S&P 500 having retraced half of its trough at time of writing.

This improvement in sentiment is also seen in our own composite sentiment indicator. Our composite sentiment score ended last week around -2.5 standard deviations away from neutral levels. This still signals that investor sentiment is at overly bearish levels (below -1); however, it is a marked improvement from the intraday low below -4 where it began the week, which was one of the lowest scores on record (Chart 2). So, there are signs of normalisation, albeit not bullishness.

Chart 2: RLAM Composite Sentiment Indicator

Source: LSEG Datastream as at 11 April 2025. The RLAM proprietary Composite Sentiment Indicator takes into account measures related to stock market volatility, private investor sentiment and company director buying. A reading of zero reflects average sentiment.

There is a possibility that markets will continue to rally back from here if tariff worries continue to roll back. With sentiment having been so depressed, there’s a chance that as recession risk recedes from the elevated levels reached last week, US stocks can experience a relief rally after their poor start to the year.

However, taking a step back, despite the delay of reciprocal tariffs, much of the uncertainty and pessimism remain. The 10% global tariff remains in place, as do sector-specific tariffs, which, despite some recent reprieves, still have the possibility of becoming more expansive given the threats by Trump – notably for tariffs on semiconductors and pharmaceuticals. In addition, the trade war between the US and China remains intense. Economic data – especially US survey data – was softening even ahead of ‘Liberation Day’ and recession risks are elevated compared to where they were at the turn of the year.

Risk events are not behind us and the beginning of corporate earnings season in the US could be the next event to drive market sentiment. We note that earnings revisions have been deteriorating over recent months, as has our Investment Clock’s global growth scorecard. With much uncertainty around trade and policy, perhaps forward guidance from companies will be what moves equity markets most in coming weeks, though it seems unwise to rule out President Trump for that role.

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