Wall Street may be past the worst of the tariff sell-off. Market volatility is likely to remain.

 Wall Street May Be Past the Worst of the Tariff Sell-Off. Market Volatility Is Likely to Remain

By Steven Orlowski, CFP, CNPR

Wall Street appears to be emerging from the steepest declines triggered by the latest round of tariff announcements, but investors shouldn’t breathe too easy just yet. While the major indexes have rebounded modestly from recent lows, the landscape remains rife with uncertainty—and that means volatility is likely here to stay.

Signs of Stabilization

After weeks of bruising losses, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have begun to stabilize, buoyed by stronger-than-expected earnings reports and cautious optimism surrounding future trade negotiations. Institutional investors, quick to de-risk amid heightened geopolitical tension, seem to be recalibrating their positions, selectively rotating into undervalued sectors and shoring up positions in defensive plays like consumer staples and healthcare.

The panic-driven selling that defined the early days of the tariff skirmish has cooled somewhat. There’s a growing consensus among analysts that, while the tariffs may drag on earnings and growth, the worst-case scenarios—like a full-blown trade war spiraling out of control—are not currently priced as imminent risks.

Volatility: The New Normal?

Despite this tentative calm, market watchers warn that the road ahead remains bumpy. The CBOE Volatility Index (VIX), often dubbed Wall Street’s “fear gauge,” has retreated from its highs but remains elevated compared to historical averages. That reflects persistent anxiety over the economic impact of tariffs, ongoing geopolitical frictions, and uncertainty surrounding monetary policy from the Federal Reserve.

In addition, global supply chains are still in flux. Companies exposed to international manufacturing or reliant on imported raw materials are struggling to forecast future costs, which could weigh on margins and stifle capital expenditures. This lack of clarity is prompting many businesses to adopt a wait-and-see approach, which can dampen both hiring and investment—key drivers of economic growth.

The Fed Factor

Adding another layer of unpredictability is the Federal Reserve. With inflation appearing relatively tame but economic growth slowing, the central bank is in a delicate balancing act. A more dovish tone might reassure markets temporarily, but any surprise shift toward tightening could reignite sell-offs.

Meanwhile, investors are parsing every Fed statement and data release for hints about the trajectory of interest rates. In such an environment, even seemingly benign economic reports can trigger sharp market reactions as traders attempt to reposition portfolios in real time.

Sector Sensitivities

Some sectors are better positioned than others to weather the ongoing turbulence. Technology stocks, long the darlings of Wall Street, are showing signs of resilience, though semiconductor companies and hardware makers remain particularly sensitive to international trade friction. Energy stocks are responding to oil price swings, which are themselves being buffeted by supply chain disruptions and geopolitical tensions in the Middle East.

Financials may benefit in the short term from higher interest rate expectations, but if consumer confidence and corporate investment begin to falter, lending volumes could take a hit.

Long-Term Outlook

For long-term investors, the key may lie in discipline and diversification. While short-term volatility can be unnerving, it also creates opportunities for those with a clear-eyed view of fundamentals and a stomach for risk. History has shown that markets can recover even from steep corrections—often more quickly than expected.

In the months ahead, expect more headline-driven trading, especially as trade negotiations evolve and election rhetoric heats up. Market participants would do well to brace for continued swings—and to remember that, while Wall Street may be past the initial shock of the tariff sell-off, the aftershocks could linger for quite some time.

---

About the Author:
Steven Orlowski, CFP, CNPR is a financial analyst and columnist specializing in market trends, investment strategy, and global economics.