Understanding recent US stock market swings

Market volatility dominated headlines last week, with the S&P 500 dropping another -2.3% to tip the index into correction territory (i.e., a cumulative decline of -10% or more from highs). The past few trading days have brought some relief for many parts of the U.S. stock market, especially those outside of the “Magnificent 7” cohort that led the market rally last year.

These swings remind investors that volatility cuts both ways and reflects the heightened uncertainty in today’s investment backdrop. To illustrate, we look at the CBOE Volatility (VIX) Index (commonly referred to as the “fear gauge”) to evaluate the market’s expectations for continued volatility of the S&P 500 over the coming 30 days.

The VIX spiked to an index level of nearly 30 last week, implying a potential for single day moves of close to 2% in either direction. That level is well above the 10-year average (18.3) and approaching the highest level since last summer (roughly 38.6). We see several factors that are contributing to this volatility, including concerns about economic growth, inflation and tariff uncertainty. A key date to watch is April 2, when the next round of tariffs threatened by the Trump administration are scheduled to go into effect, but recent experience has taught us to acknowledge that those plans could change.

Despite the heightened volatility, fundamental drivers of the economy remain healthy. Household and corporate balance sheet data continues to be resilient and we expect economic expansion to continue, albeit at a more moderate pace. This is why we see the market’s latest bout of volatility as one that could create attractive entry points for investors.

All market and economic data as of 03/18/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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