By Krystal Hur

The era of ultra-calm markets is now a distant memory.

Stocks steadily marched higher for much of the past two years, clinching dozens of records. Selloffs were brief and infrequent: Last year, the S&P 500 completed a 356-session streak without a daily decline of 2% or more, its best such stretch since one that ended in February 2007, according to Dow Jones Market Data.

President Trump's trade policies have upended that tranquility, sending stocks tumbling and creating stomach-churning moves along the way. All three major U.S. stock indexes are down at least 6% this year. The Nasdaq Composite, once propelled to dizzying heights by the AI boom, is in a bear market, a 20% drop from its recent high. The U.S. stock market has added and lost trillions of dollars of value during a single session, sometimes in a matter of minutes. Recession expectations have changed by the hour.

Analysts fear tariffs could send inflation higher and tank the economy's growth. That has led some investors to abandon go-to investing strategies like "buy the dip" and flail for a new playbook befitting a period of uncertainty.

"There's going to be punches, and you don't know where they're going to come next," said Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets. "There's been such tectonic shifts."

The Cboe Volatility Index, known as the VIX or Wall Street's fear gauge, has swung wildly in recent days. The VIX spiked one day earlier this month to its highest level since the Covid-19 crash. A day later, it notched its largest daily percentage decline on record.

Trading volumes have skyrocketed, underscoring investors' frenetic attempts to protect their portfolios. More than 98 billion shares changed hands on the New York Stock Exchange and Nasdaq last week, the highest weekly volume on record, according to DJMD.

Even seasoned money managers and analysts have hit snags trying to make sense of the market's violent churns.

"The volatility has been so dramatic that we chose not to have our designers put in a chart of the S&P 500 in this commentary because it could be off by 5% by the time it's published," strategists at LPL Financial quipped in a Monday note.

The Trump administration has acknowledged the uneasiness that changing tariff policies have caused. Trump said last week that he paused the bulk of his reciprocal tariffs due to "yippy" reactions. Treasury Secretary Scott Bessent said Monday that he believes that markets will calm down.

"Clarity is through the eye of the beholder, but I can guarantee you that we're going to run a robust process [negotiating tariffs]. And I think the market can take great comfort in that," Bessent said in a Bloomberg Television interview. "I don't want to make market calls, but I think that the VIX spiked and has likely peaked."

Investors are still bracing for more volatility ahead and are piling into options contracts that would pay out if the VIX races higher. In recent days, some of the most actively traded VIX contracts were call options tied to the index reaching 55 and 60, up from Wednesday's close of 32.64, according to Cboe Global Markets data. Calls offer the right to buy an asset at a set price.

Traders are also snapping up bearish bets. An options measure called "skew" for S&P 500 options last week reached its highest level since 2020 and has remained elevated since, Cboe data show. A higher skew usually signals that prices for put options, often used to hedge against downturns, are more expensive relative to call options, which typically represent bullish wagers.

Some investors also worry that Trump's tariffs could sink corporate earnings growth, a historically important driver of market rallies.

Some analysts point out that Trump's other policy goals such as deregulation and tax cuts could help offset pain from his tariffs. And expectations for earnings growth remain strong, despite the recent market carnage: Analysts expect companies in the S&P 500 to report a 11% jump in corporate earnings in 2025 from the prior year, down from the 14% increase they projected at the beginning of the year, according to FactSet.

"You have to believe that there's something to the other side, because otherwise this is just madness," said Nancy Curtin, global chief investment officer at AlTi Tiedemann Global.

Write to Krystal Hur at krystal.hur@wsj.com

(END) Dow Jones Newswires

April 16, 2025 21:00 ET (01:00 GMT)

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