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On Monday morning, speculation regarding a potential truce in the trade conflict prompted a significant upswing in U.S. equity markets, with major indices recovering rapidly from initial declines to reach their peak levels within a brief window. This event contributed to a day characterized by notable volatility across financial markets.
Market participants, including investors and traders, engaged in dip-buying, driven by both technical signals and optimism that any alleviation in tariffs could spark a new bullish trend.
The Cboe Volatility Index (VIX), a widely recognized measure of market fear, surged past 60 in pre-market trading before stabilizing slightly under 50 at market opening. This fluctuation came after President Trump’s remarks over the weekend suggested that the markets might soon face tough adjustments following his earlier tariff announcements, which he described as “a beautiful thing to behold.”
Despite President Trump’s warning that tariffs on China could increase further if Beijing does not eliminate its retaliatory measures by Tuesday, the stock market showed resilience in the afternoon, trading sideways to upward.
The VIX, which had seen a low of 20.68 on April 2 before closing at 21.51 that day, exhibited dramatic increases, peaking at 30.02 on April 3 and then hitting 45.31 by the end of last week. According to Tim Edwards and Hamish Preston from S&P Dow Jones Indices, a useful benchmark categorizes VIX levels below 12 as ‘low,’ above 20 as ‘high,’ and those in between as ‘normal.’
LPL Financial’s Chief Technical Strategist, Adam Turnquist, commented on the unsettling drop in equity markets last week, noting a sense of panic among investors but also suggesting that we might be at a pivotal point. Turnquist highlighted that historically, such extreme VIX readings often occur near significant market capitulation points.
Data analyzed by Turnquist indicates a favorable outlook following VIX spikes, with historical average returns of 1.5%, 7.4%, and 15.6% over one, six, and twelve months, respectively, post as VIX levels reach 30.1 or more.
The VIX ultimately settled at 48.01 as trading wrapped up for the day. In terms of the index performance, the blue-chip Dow Jones Industrial Average fell 0.9% to 37,965, while the broad S&P 500 Index decreased by 0.2% to 5,062. In contrast, the tech-oriented Nasdaq Composite managed to climb 0.1% to 15,603.
Assessing Bitcoin’s Position
Bitcoin (BTC) exhibited relative stability throughout Thursday and Friday, then began to mirror the downward trends seen in traditional financial markets on Sunday.
Despite BTC gaining 0.7% and 0.9% on Thursday and Friday respectively, it suffered a steep drop of 8.4%, closing at $77,097 on Sunday after hitting a high of $84,207 the previous day.
The iShares Bitcoin Trust ETF (IBIT), a key vehicle for investment in cryptocurrency, was down 5.7% on Thursday but saw a 2.4% recovery on Friday before dropping again by 7.2% on Monday.
In a recent appearance, Treasury Secretary Scott Bessent suggested that Bitcoin is evolving into a store of value, drawing parallels with gold, which has traditionally held this status. He remarked that the history of value storage has seen various assets come and go over time.
Gold itself was not immune to the recent market turmoil, with front-month futures decreasing by 4.5% and the SPDR Gold Shares (GLD) falling by 4.9% since April 2, prompting discussions about the viability of gold as an investment during this period of volatility.
Future Implications for the Federal Reserve
Bob Michele, the global head of fixed income at JPMorgan Asset Management, voiced his uncertainty about the Federal Reserve’s capacity to hold off on interest rate adjustments ahead of their next meeting. He suggested the Fed may need to consider lowering rates before the scheduled meetings on May 6-7.
While Fed Chairman Jerome Powell acknowledged the significant impact of Trump’s tariff policies on the economy—exceeding initial expectations—he maintained that the economy shows resilience based on the data available, albeit historical in nature.
Michele concluded that Powell’s stance indicates they will wait for a significant event before responding to the changing economic landscape.
Current market expectations as reflected in federal funds rate futures indicate a notable rise in the likelihood of a rate cut at the May FOMC meeting, increasing from 14% at the end of March to 35% currently.
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