LIVE MARKETS-Despite uncertainties, stock volatility hasn’t picked up much on Trump

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DESPITE UNCERTAINTIES, STOCK VOLATILITY HASN’T PICKED UP MUCH ON TRUMP

Stock market volatility hasn’t increased much under U.S. President Donald Trump’s new term despite uncertainty over what his ultimate tariff plans will be, John Higgins, chief markets economist at Capital Economics, said in a report on Wednesday.

Now the question is whether clarity on the trade levies will change that. Trump has scheduled a White House Rose Garden announcement ceremony on the topic at 4 p.m. Eastern Time (2000 GMT).

Higgins notes that annualized volatility of the S&P 500 in the last 30 days was around 20% as of Tuesday’s close. This is higher than average, but well below prior peaks. The VIX .VIX, which gauges the option-implied volatility for the S&P 500 in the coming 30 days is also not especially high.

There are reasons for the relative calm. “It makes sense for investors not to have reacted strongly to speculation about broad-based tariffs without knowing their form or size. What’s more, the on/off nature of some of the other tariffs Trump has already imposed since 20th January – consistent with the idea that he views them as a negotiating tool – has justified a cautious approach.”

Trump’s tariff announcement later on Wednesday will test whether volatility picks up.

“Actual news on broad-based tariffs might elicit considerable volatility in the stock market if those tariffs defy expectations,” Higgins said, though he notes that “it is difficult to know what investors are braced for, if they have any sense at all of what to expect.”

An outcome that is significantly different to the equivalent of a universal tariff of 10% “could prompt a big reaction,” Higgins said. But, “even if the tariffs are much larger than expected, unless Trump makes clear that they are intended to be permanent, investors may conclude that they are also likely to be rolled back at least in part. In that case, much of any big initial reaction in equity prices might be swiftly unwound before the stock market settled down again.”

Meanwhile broad-based tariffs that are coupled with continued uncertainty over how long tariffs will last could weigh on the economy and the stock market, even without a recession, but will also not necessarily increase volatility if investors expect another policy change, Higgins said.

(Karen Brettell)

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