Market Update: Tariffs, Volatility, and What We’re Watching

The past week has delivered a sharp spike in market volatility, with the S&P 500 falling 12% from its recent highs. While a 10–15% pullback is historically typical—occurring in nearly two-thirds of calendar years—there’s a growing sense that this correction is different in tone and potential impact. Between geopolitical tensions, rising concerns about inflation, and an unexpected surge in trade tariffs, investors are grappling with a wave of uncertainty.

What Triggered the Drop

The U.S. announced a sweeping new trade policy earlier this week, centered on broad-based tariffs. While the market had anticipated some tariff adjustments, the actual scope far exceeded expectations, introducing an average tariff of 25%, with some categories reaching as high as 34%. These actions were framed as a “reciprocal trade strategy” but their magnitude rattled global markets and raised fears of retaliation, supply chain disruption, and a broader economic slowdown. It is too early to know at this point if the announced tariffs are the starting point for negotiations with other countries so the short-term market response is what we are focused on.

A Shift in Market Sentiment

Initially, markets were pricing in a mild economic slowdown—but this appears to be evolving. However, this could be the start of a deeper repricing if the narrative shifts from “slowdown” to “recession risk.” Bond markets offer early clues, particularly high-yield bonds, with price changes indicating that investors are demanding higher compensation for credit risk and a possible sign of rising concerns regarding the health of the economy and corporate earnings.

The CBOE Volatility Index (VIX), often referred to as the market’s “fear gauge,” has surged to levels not seen since the COVID Crisi. On April 4, 2025, the VIX reached an intraday high of 45.56, indicating heightened investor anxiety amid escalating trade tensions.

Concurrently, bonds have emerged as an important safe-haven asset, rallying as equity markets tumble. This defensive shift is further underscored by atypical currency behavior: the U.S. dollar, which traditionally strengthens during periods of market stress, has weakened. This anomaly raises broader questions about the global role of the dollar and the impact on investment opportunities in International stocks.

Flourish’s Response

In uncertain times like these, our commitment to long-term, evidence-based investing becomes more important than ever. Our portfolios remain globally diversified and balanced between stocks and bonds, which has provided some downside protection. Bond markets have gained ground while international and emerging markets have offered relative strength.

We’re actively taking the following steps:

• Rebalancing portfolios to stay aligned with your long-term risk targets.
• Tax-loss harvesting in taxable accounts to maintain market exposure while lowering future tax liability.
• Monitoring cash flow needs, ensuring that clients taking withdrawals have 3+ years of spending covered through bond ladders and stable assets—so equities don’t need to be sold at depressed prices.
• Reviewing allocations to value-oriented stocks, which have outperformed growth peers so far this year. As of April 3, 2025, the Russell 1000 Value Index is down approximately 4.2% year-to-date, while the Russell 1000 Growth Index has declined around 13.6%. These figures reflect the market’s rotation away from the “Magnificent 7” and highlight the benefit of style diversification. As noted in previous commentary, Flourish’s heavier tilt towards value funds has continued to provide ballast to portfolios during this volatility.
• Evaluating potential strategic tilts toward international equities, particularly if long-term trade and tariff policy results in a weaker U.S. dollar or relative advantages for foreign markets. A sustained shift in global trade dynamics may make international markets more attractive from both valuation and currency standpoints.

What We’re Watching

The market’s next move will likely hinge on how much bad news gets priced in—and whether broader signals confirm recessionary fears. We’re closely watching:

• The Fed’s response: More rate cuts are being priced in as markets assess the economic impact of tightening financial conditions and policy-driven shocks.
• Currency behavior: Continued U.S. dollar weakness—unusual during risk-off periods—could signal deeper macroeconomic dislocations or shifts in global capital flows.
• Trade and tariff policy developments: We are monitoring how foreign governments respond to the newly announced tariffs and whether additional policy changes or retaliatory measures emerge. The market will likely remain volatile as global trade dynamics evolve.

In Closing

While this period of volatility may feel unsettling, it’s not unprecedented. Consider the market’s 34% drop during COVID—and the 115% rally that followed over the next nine months. Staying invested and sticking to a disciplined strategy remains the most consistent path to long-term success.

As always, we’re here for you. Please don’t hesitate to reach out if you’d like to review your portfolio or discuss your plan. Uncertainty is a natural part of the investing journey—and it’s our job to help guide you through it.