Fear of the Unknown: Markets, Tariffs, and the Week That Felt Like a Year

The markets are whipsawing, volatility is rising, and uncertainty is the name of the game. Here’s what’s really driving the chaos.

KEY TAKEAWAYS

• The VIX has climbed above 23, signaling increased market volatility, driven by uncertainty around tariffs and economic policy.
• Earnings season showed strong growth, with S&P 500 earnings up 13.2% YoY, but high expectations led to tech stocks selling off post-earnings.
• Tariffs remain a wildcard, with markets reacting sharply to policy shifts—especially regarding autos and China.
• Fear of the unknown is impacting both market sentiment and consumer behavior, potentially slowing down economic activity.
• The Fed is more likely to lower interest rates, which could provide some relief, but uncertainty remains the dominant theme.

MY HOT TAKES

• The VIX is finally catching up to reality—volatility was too low given all the market uncertainties.
• Just because earnings were good doesn’t mean stocks go up—expectations matter more than the raw numbers.
• Tariffs are as much about the uncertainty they create as they are about actual economic impact.
• Markets love certainty, and right now, they’re getting the opposite.
• This isn’t the end of the world—uncertainty cycles through, and patient investors will win.
• Quote me on this, “let-downs suck on Wall Street–the market is allergic to them.”

The only thing we have to fear is… Is it Friday yet? I have been asking that question since around midday on Monday. The amount of information we have had to process this week so far has far exceeded what we would normally process in several weeks. At least it feels that way. There was good news, bad news, and news that may or may not be good or bad, with a strong emphasis on that last one. All this information has pushed markets all over the place with no clear direction.

What seems like a long time ago, I told Carol Massar and Tim Stenovec in a Bloomberg Radio interview that I was surprised that the VIX was so low given the number of unknowns swirling around the markets. The VIX was in the mid-teens at the time, which is not exactly low, but would clearly not be considered high. For the record, heuristically, levels over 20 would cause most folks to consider the markets volatile–I use 18 as my gauge. 😉It was just a few days after President Trump’s inauguration. At that point, it was clear that the President was going to rely on tariffs to push his global agenda, though that should have been clear already, based on his campaign promises and his past presidency.

Earnings season had just begun and the banks came out of the box really strong, raising hopes, and pushing bank stocks higher. Strong earnings and a business-friendly, regulation-abhorring president were the key ingredients of a winning cocktail for stocks. Hopes were that the same combination would work across all sectors.

It didn’t take long for the President to show the world that he was serious, and he got down to real business that following Monday, sharpie in hand. The Fed was on hold and would have to be for even longer. If the President made good on all his campaign promises, inflation threatened to pick up again–not exactly a good time to be cutting interest rates, especially given the strength of economic numbers which continued to show a solid economy. Markets almost… almost closed at an all-time high on the day of my interview. It would take another two weeks before that all-time high close would happen.

The Big Index would log two more all-time highs before losing altitude and quickly slamming into major support at its 200-day moving average two days ago. The VIX is now at around 23–yes that is above my ceiling. The VIX at this level implies a daily market move of around +/- 1.45%. To quote one of my favorite Wall Street sayings, “volatility works in both directions–it’s your best friend on up days, and worst enemy on down days.”

Now, the VIX index only calculates volatility of the S&P 500, but I am sure that you own some stocks that are more volatile than the S&P 500. Why do I bring this up? Well, I am sure that you follow where markets close every night, but it is the performance of your portfolio that ultimately determines how well you sleep at night. Do you own NVIDIA? Probably. How about Meta? Likely as well. Have you noticed how those stocks have moved recently? Well, you can calculate expected daily moves using that VIX number I gave you up top. For example, NVIDIA has a BETA of around 2, which implies that we can expect moves of +/- 2.9% per day. That means on any given day–these days–you will either be up around 3% or down in that stock. That can be off-putting when stocks have closed down 7 out of the past 10 trading days. How are you feeling? Are you as optimistic as you were in late January?

What happened between then and now? Well, there was earnings season which is just a few stocks away from ending. I am sure that you have heard the word “disappointing” more than a few times over the past few weeks. The reality is however, that earnings were anything but disappointing. Overall, S&P 500 earnings grew by 13.2% over the prior year, which is a vast improvement over the prior earnings season which only grew by around 6.6%. Do you want to talk tech? Earnings in that sector grew by 18% this season compared to last season’s 9.9% change. Interestingly, despite a better earnings growth trajectory this season, tech stocks declined by an average of -1.48% a day after earnings were announced, while last quarter, tech stocks climbed by 1.71% a day after earnings. Why is this? Well, it could be that despite the growth and earnings beats, expectations were higher. Let-downs suck on Wall Street–the market is allergic to them.

Last week ended with tariffs on Mexico and Canada on hold with an additional tax aimed at China loaded in the chamber. Stocks closed out last week on a positive note as the calendar turned to March. By Monday morning, any optimism would be lost as the President confirmed that tariffs would indeed become reality a day later. That appeared to be a let-down as well. 

Yesterday, as the market was once again sitting right on the 200-day moving average, the President threw in a lifeline, giving temporary tariff reprieve to automakers, and stocks closed just under session highs in the green, far off the lows. Was this the Trump Put that everyone was talking about and hoping for? Perhaps, but it is really too early to tell.

Tariffs themselves can cause economic hardship, but unknowns around tariffs, even if never enacted, can cause economic hardship as well. If you are unsure about the economy or the prices of cars, would you plunk down $48k (that is the average price of a new car) on a new vehicle? How about these interest rates, which affect your monthly payments if you lease or finance that purchase? No. You are more likely to put off the expenditure WHICH HAS A DIRECT negative impact on both GDP and car companies.

We knew about DOGE at the time, and we knew that there was going to be some heavy-handed cost cutting. But did we expect as many as 500k workers to lose jobs this year (high end estimate). How about all the other jobs that can be lost by government contractors–and all the businesses that support the workers? Entire agencies may disappear completely. Perhaps it is good that the government is minding its expenses, working to lower the deficit. But will these savings make a difference when the nearly 3 million civilians who work for the Federal government and 15 million who work for State and local governments are worried about their jobs? Why don’t you just ask one. Do you think that any of those folks are running to book a trip to Disneyland? Planning to purchase a car? A new home? How about a new dishwasher or TV? If they did, what would they think if the prices of those things were higher than expected as a result of tariffs? More unknowns, wouldn’t you say.

Look, at the end of the day, the fear of unknowns is going to eventually impact consumption, if it already hasn’t. Fear of unknowns is already impacting the markets AND YOUR SAVINGS. Based on the information gathered this week alone, we are still far away from the end of the day. WAIT… I was going to end there but I will give you a bonus! 🚨🚨This period of uncertainty won’t last forever as we will get more clarity and market begins to factor this in as a new normal. Oh, and the Fed is now more likely to lower interest rates, and that should provide some cold comfort. Be patient, you will win, but only if you stay focused on the long term.

YESTERDAY’S MARKETS

Stocks ended higher in a session that required a strong gastric constitution. Weak employment figures from ADP heightened recession fears sending stocks lower. Fears were compounded by confusion over tariffs; fears were ultimately quelled by reports that automakers would get a one-month hold on auto tariffs.

NEXT UP

• Initial Jobless Claims (March 1) is expected to come in at 233k, a slight decrease from last week’s 242k claims.
• Fed speakers today include Harker, Waller, and Bostic.
• Important earnings today: BJ’s Wholesale Club, Venture Global, Kroger, Burlington Stores, Macy’s, Costco, Broadcom, HashiCorp, HP Enterprise, Guidewire Software, Gap Inc, and BigBear.ai.

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