Market Minute: Stock Rebound – Hold On a Minute!

The stock market is experiencing a whirlwind of activity, with volatility surging as investors grapple with uncertainty surrounding President Donald Trump’s impending trade policies. After a rollercoaster Monday that saw dizzying swings in U.S. equity indexes, stocks are staging a modest recovery as dip-buyers stepped in, cautiously optimistic yet aware of the potential turbulence ahead. Futures point to gains on Wall Street, and European shares have clawed back some ground after their worst three-day plunge since the pandemic. However, the CBOE Volatility Index (VIX), often dubbed Wall Street’s “fear gauge,” remains stubbornly above 40, a level signaling elevated unease despite a slight pullback in chaotic trading.

The recent spike in volatility reflects a market caught in elevated uncertainty. Investors are parsing every signal for clues about how Trump’s administration will approach trade, a cornerstone of his economic agenda. Monday’s selloff in Treasuries and equities underscored the fragility of sentiment, with the dollar slipping against major peers as a result. While today’s rebound brought a semblance of calm, the undercurrent of instability persists. Market watchers are concerned that the VIX’s elevated level above 40 suggests traders are bracing for more surprises, a stark contrast to the relative stability of recent months.

Despite the turbulence, there’s a glimmer of hope and resilience. Tuesday’s dip-buying suggests some investors see opportunity amid the chaos, betting that clarity on Trump’s plans, or a softening of his tariff stance, could stabilize sentiment. U.S. equity futures are trending upward, and Treasuries have steadied, offering a breather after Monday’s storm. Yet expectations should remain tempered due to headline risk and a potential escalation of the trade war. All four of the major indices remain oversold as the Relative Strength Index (RSI) settled below the 25 level yesterday. Anything below the 30 level for the RSI is considered oversold, so many investors feel this could be a good entry point for stocks. The problem is that there is no certainty at this point for ‘Risk-On’ assets for an extended bounce.

Upcoming catalysts for a sustained rally could be on the horizon. Inflation data this week includes the CPI and PPI on Thursday and Friday respectively, could provide some stability. Earnings season kicks off on Friday with reports due from the major financial stocks including JPMorgan Chase (JPM) and Wells Fargo (WFC). For now, the watchword is caution. With the VIX signaling persistent jitters and tariffs casting a long shadow, investors are hedging bets rather than making bold moves, which may be a prudent approach.