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If you know how to thrive on volatility, 2025 hasn’t been disappointing.
The price swings have been the greatest since the middle of the pandemic bear market.
At the end of March, the S&P 500 had just finished its worst quarter since 2022. Then the index plunged another 12% in just four days.
That decline brought the S&P down as much as 21% from its February 19 peak. The S&P 500 fell into a bear market in just 47 days – one of the fastest bear markets in history.
But just as it looked like stocks couldn’t find a bottom, the stock market staged a massive rally. President Trump paused most tariffs for 90 days.
That led the S&P 500 to post its third-best day in history. The index gained 9.5% in just a single trading session.
These ups and downs are a lot to deal with. Yet this is an ideal environment for traders.
And I don’t think volatility is in the rearview mirror just yet…
The Trade War Is Ongoing
The stock market has been rallying like the trade war has already gone away. As of early May, the S&P 500 recovered all the losses following the Liberation Day announcement.
But I believe investors’ hopes are misguided. We can look to history as a guide for why that’s the case.
First, look back at Trump’s first term in 2018. The trade war mainly involved China when Trump imposed tariffs. The tariffs were much smaller and covered fewer imports compared to now.
But it still took two years for the U.S. and China to reach a trade deal.
This time, Trump has imposed a 10% tariff on nearly all trading partners. Although on hold for now, he’s announced an additional round of reciprocal tariffs for 57 countries. The tariff rate on Chinese imports could be as high as 145% too.
Trade deals have to be negotiated with each country. The involvement of key industries like artificial intelligence and the automotive sector only complicates matters since the stakes are so high.
The recent market action shows investors are hoping for a quick resolution to the trade war. But given the scope and scale of tariffs this time around, it will be a long time before deals with key trading partners are finalized.
That leaves the stock market exposed to uncertainty and unpredictable news headlines like the ones that helped drive the sell-off in early April.
History also shows that a retest or undercut of the April lows is likely, especially as the trade war goes unresolved…
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What History Shows
Look at 2011. Back then, the S&P 500 fell by 17% in just one month.
Drama from Washington, D.C., was once again the catalyst. As Congress and the White House sparred over federal spending and the debt ceiling, a debt default became a growing possibility.
The drama peaked on August 5, when S&P Global downgraded the U.S. credit rating for the first time in history.
But look at the action in the S&P 500 around those events. After the initial low on August 8 at “1,” the index rallied over the next few weeks. The S&P retraced a portion of the losses and plunged again. It made a fresh low at “2” as debt fears spread to Europe.
There are two things to note about that moment.
First, it’s common to see the stock market come back and retest the low following an emotional sell-off.
Second, that retest becomes more likely if uncertainty drives more volatility.
Back in 2011, there was fear around debt and the potential for default in the U.S. and Europe. This time, it’s the trade war. I’m skeptical that trade deals will be negotiated as quickly as investors expect.
Don’t Get Complacent
With the S&P 500 recovering all the losses following Liberation Day, it’s easy to think a sense of calm is returning to the market.
I mentioned at the start that the S&P 500 had one of its single-best days ever. The 9.5% gain on April 9 was the largest gain since October 2008.
But do you notice anything about that date? It was right in the middle of the 2008 financial crisis. On that occasion, the S&P 500 moved to new lows and didn’t find a bottom for another five months.
I point that out because some of the stock market’s largest rallies unfold right in the middle of bear markets.
That means we need to be prepared to trade while being mindful of sound risk management practices.
I don’t think this period of volatility is going away anytime soon. But that’s good news for traders. My One Ticker Trader members have had 18 wins out of 19 closed trades so far this year.
And earlier this week, I shared five tickers we plan to use to profit this month with my readers…
So if you want to be ready to capitalize as the market swings about, you can check out how to get my trade recommendations here.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
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