Navigating the storm
In the days following Trump’s tariff announcement, the S&P 500 plunged 10 per cent in just two days, 10-year treasury yields swung wildly, and gold, after touching a peak, stumbled. Add to this the backdrop of escalating global trade tensions – think U.S.-China tariffs – and it’s no surprise that investors are on edge. Meanwhile, consumers are wrestling with their own worries about inflation, jobs, and the economy’s trajectory.
While volatility is par for the course when it comes to long-term investing and portfolio management, a reprieve in volatility can nevertheless provide investors with an opportunity to pause and reflect, reset the compass, and regain and ensure composure.
To that end, it may be helpful to provide some perspective about the volatility and draw attention to economic data from a March 2025 New York Federal Reserve survey that may have been sidelined by Trump’s chaotic start to his presidency.
A correction, not a crash
A 10 per cent drop in the S&P 500 over two days is a jolt – it makes headlines and tests one’s resilience and one’s portfolios. But history reminds us we’ve all seen or studied worse.
The Great Depression saw the Dow Jones Industrial Average crater 23 per cent in two days, Black Monday in 1987 erased 22.6 per cent in one, and the COVID-19 crash of 2020 brought a 12 per cent single-day plunge. The most recent gyrations, while significant, aligns more with the Global Financial Crisis’s milder days (5-10 per cent drops) or the European Debt Crisis of 2011, when stocks fell 5-7 per cent amid similar uncertainty.
The VIX, Wall Street’s “fear gauge,” reportedly hitting 45 in the most recent bout of uncertainty, reinforcing the idea it wasn’t extreme. During the GFC panic of 2008, the VIX touched 80.9 and at the outset of the COVID-19 pandemic in 2020 the VIX hit 82.7.
Bonds are also restless. A 60-basis-point swing in 10-year treasury yields – say, from 4.6 per cent to 4.0 per cent – translates to a five to six per cent price shift. This is notable but not extreme. It resembles the Taper Tantrum of 2013 and the quieter moments of 2008, not the chaotic yield collapses of early COVID-19.
Finally, gold is volatile, with a three per cent daily drop from US$3,167 to US$3,024. Yet compared to its 25 per cent plunge in 1980 or 15 per cent slide in 2008, this is a ripple, not a wave.
In short, today’s volatility is real but not historic. It echoes the mid-tier volatility of 2011 and 2018 – where markets wobbled but didn’t collapse. For investors, this suggests a correction driven by uncertainty, not a sign of systemic failure. Keep that in mind – this is instability but it’s not a financial, liquidity, currency or macro crisis.
Expectations
The New York Federal Reserve Bank’s March 2025 survey captured a cautious mood among U.S. consumers and investors. Only 33.8 per cent expect the stock market to be higher a year from now – the lowest confidence since June 2022, and down 3.2 points from February. This pessimism has surely continued into April with the market’s recent jitters, fuelled by trade war fears and President Trump’s April 2, 2025, “Liberation Day” announcement fanning the instability and uncertainty.
While optimism towards equities appears to have faded, gold expectations are robust – investors predict a rise of over five per cent, the highest in three years. This shift toward safe-haven assets suggests investors aren’t abandoning hope but are hedging bets, expecting turbulence but not a total derailment.
If I were to offer an interpretation, it would be; brace for choppy waters, but don’t assume the ship is sinking.
What it means for consumers
The New York Federal Reserve survey shows inflation expectations for the next year have jumped to 3.6 per cent, a half-point rise and the highest since October 2023. Worries about unemployment are even starker: 44 per cent expect a higher jobless rate in a year, and the grimmest outlook since the pandemic. Clearly, and perhaps worryingly consumers are being impacted by trade war headlines, and arguably reflect broader unease about the cost of living and job security.
Longer-term, inflation optimism persists and the survey suggested consumers see today’s pressures as temporary.
The survey paints a picture of consumers bracing for near-term pain, including higher costs and job market risks, but not a prolonged collapse. For investors, the results signal potential headwinds for consumer-driven sectors like retail but also opportunities in healthcare or commodities – those tied to rising costs.
What it means for investors
Today’s volatility, while unnerving, fits within the market’s historical ebb and flow. It doesn’t appear to be a time to panic.
The take aways are to remain diversified: A 10 per cent stock drop hurts, but it’s not 2008 – not yet anyway. Another suggestion would be to consider alternatives such as private credit, which can produce attractive returns, aim to generate regular income and aren’t tied to public markets, which means they can avoid and mitigate their volatility. Finally, it’s important to maintain perspective: volatility spikes cluster but they are often short-lived. The 2011 crisis saw similar VIX levels, yet markets stabilised.
It’s worth remembering to put fundamentals ahead of fear.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
