Volatility Isn’t the Enemy—It’s the Landscape
Markets are flashing cautious optimism: equities have recovered modestly, credit spreads are slightly tighter, and expectations for Fed cuts have been pared back compared to last week. But underneath that relative calm, the drivers of volatility remain firmly in place.
Semiconductor earnings have disappointed, geopolitical tensions are rising, and major banks are quietly signaling caution. JP Morgan and Goldman Sachs both increased their Q1 loan loss reserves, citing early pressure on consumer and commercial credit. Recession chatter has returned—JP Morgan puts the odds at 60%1, Goldman at 35%2—but so far, the hard data hasn’t confirmed a downturn.
The optimism around tariffs and fiscal stimulus is more hope than fact. While markets want to believe the administration is making progress on both, there’s no concrete evidence that deals have been secured or that budget proposals will make it through Congress. That leaves volatility not only elevated—but prone to sharp spikes.
Gold’s +27% YTD run and still-high implied correlations in the S&P 500 reflect that defensive positioning hasn’t gone away. Because of some of the uncertainties around US treasuries and recent auctions we have seen a safety bid in gold reach historic overbought levels. But a less strident administration tone seems to be supporting bonds of late. The 10-year Treasury yield has eased to ~4.28%, a notable drop that also underscores rising bond market concerns about growth. Meanwhile, the U.S. dollar (DXY) is down around 8% YTD, reflecting a re-pricing of the Fed’s path: futures now suggest a bit more than three rate cuts in 2025, even as Fed officials maintain a cautious tone.3
Looking ahead, markets are entering a pivotal stretch. Before the May 7 Federal Open Market Committee (FOMC) decision, we’ll see a wave of critical data that could shape expectations: JOLTS (April 30), ISM Manufacturing (May 1), and the all-important Nonfarm Payrolls (May 3). These releases will offer fresh insight into the health of the labor market and broader economic momentum—and may challenge or reinforce the recent dovish tilt in yields and rate expectations.
As always we are more focused on portfolio resilience and efficient return rather than levels. We’re not calling an all-clear yet. But with volatility still high and policy clarity elusive, the current market environment may be forming a durable floor. Investors are looking for signs that the worst-case scenarios on growth, rates, and geopolitics might not materialize. Siding with them could make sense and certainly selling here would seem late. However, until those signals are more definitive, elevated volatility is likely to persist, and markets may continue trading in wide ranges. In that context, strategies designed to benefit from volatility and dispersion remain well-positioned to enhance portfolio resilience and diversification in the months ahead.
Sources
1 J.P. Morgan, Global Research, 15 Apr 2025.
2 Fortune, Goldman Sachs now sees much higher odds of economy shrinking, hiking probability of a U.S. recession to 35%, 31 Mar 2025
3 Bloomberg Data
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