Market Volatility Persists Amid Economic and Geopolitical Uncertainties

U.S. stocks experienced a volatile trading session today, initially declining amid growing concerns regarding the economic outlook, exacerbated by the potential impact of U.S. trade policies. The specter of stagflation also weighed heavily on investor sentiment, following the Federal Open Market Committee’s (FOMC) revised economic projections released on Wednesday. The FOMC’s updated forecasts, which included a reduced 2025 U.S. GDP growth estimate and an elevated 2025 inflation outlook, further fueled apprehensions. Additionally, negative carryover from a downturn in European markets, triggered by European Central Bank (ECB) President Lagarde’s remarks about the uncertainty created by U.S. tariffs, contributed to the downward pressure on U.S. indices.

Economic data released today presented a mixed picture. U.S. weekly initial unemployment claims rose slightly, indicating a marginally stronger labor market than anticipated. The Philadelphia Fed’s business outlook survey for March exceeded expectations, signaling continued, albeit moderating, regional economic activity. Similarly, existing home sales in February unexpectedly surged, surpassing forecasts. However, the U.S. leading economic indicators for February fell short of expectations, suggesting potential headwinds for future economic growth.  

Geopolitical tensions in the Middle East further exacerbated market anxieties. Israel’s resumption of airstrikes in Gaza, ending a ceasefire with Hamas, and Prime Minister Netanyahu’s pledge to escalate military action, heightened regional instability. Concurrently, U.S. airstrikes against Houthi rebels in Yemen, with promises of “unrelenting” action, and the rebels’ vow to retaliate against U.S. vessels in the Red Sea, added to the prevailing uncertainty.  

The ongoing pressure on stocks over the past two weeks stems largely from fears that U.S. tariffs will negatively impact economic growth and corporate earnings. President Trump’s recent imposition of tariffs on Canadian and Mexican goods, coupled with a doubling of tariffs on Chinese goods, has fueled concerns about escalating trade tensions. His subsequent reiteration of plans to implement reciprocal and sector-specific tariffs on foreign nations in April has further unsettled investors.  

Market participants are currently discounting the likelihood of a 25 basis point interest rate cut following the May 6-7 FOMC meeting, placing the probability at approximately 18%.

Overseas markets also reflected the prevailing bearish sentiment. The Euro Stoxx 50 index retreated from a two-week high, closing lower. China’s Shanghai Composite Index also experienced a decline. Japanese markets were closed for the Vernal Equinox Day holiday.