Tariff Shock Deepens — Volatility Hits 2020 Levels

Markets remain under pressure as the largest tariff expansion in modern U.S. history continues to ripple through equity, bond, and volatility markets. Unusual cross-asset moves, record-breaking ETF losses, and conflicting policy signals are raising concerns about global stability and recession risk.

Tariffs & volatility

🔺 Markets: Disconnect Between Risk Assets and Rates

• Equities Down, Yields Up: The $S&P 500(.SPX)$ is down 12% over the last 4 trading days, yet 10-year Treasury yields are up 10 bps. This rare divergence removes a typical counter-cyclical buffer as bond markets fail to reflect recession fears — or are instead pricing in inflationary risks from tariffs.

• Corporate Spreads Widening, But Not Blowing Out: U.S. corporate bond spreads are finally widening, but still sit below levels seen during past recessionary scares (2016, 2018, 2022), let alone a confirmed economic contraction like in 2020.

• Mortgage-Treasury Spread Still Wide: The 30-year mortgage spread vs. Treasuries has remained abnormally wide since 2023, largely due to refinancing risk. A decline in yields could help correct this, but the bond market is not yet cooperating.

Data Watch: Volatility Signals Elevated Systemic Risk

• The $Cboe Volatility Index(VIX)$ surged to 52.3, marking a new high for the current selloff.

• These levels have only been seen in 2008–09 and March 2020, both of which were eventually followed by aggressive government action and substantial equity rebounds.

• VIX is both a symptom and potential catalyst for eventual policy response — the higher it climbs, the louder the market’s call for help.

“In 2008 and 2020, volatility at this level forced policymakers off the sidelines. That may ultimately be the cure again.”

Trade & Policy: Tariff Escalation Continues

• The Trump administration confirmed new 50% tariffs on Chinese goods will take effect at 12:01 a.m. Wednesday, bringing total duties on Chinese imports to over 104%.

• Beijing has vowed to retaliate, while market hopes for a negotiated pause are fading.

• China's 34% counter-tariff remains on the table, escalating the trade war into what now appears to be a long-term economic standoff.

“The additional levies mean Chinese goods entering the U.S. will face duties of more than 104% — a level that will be seen as a provocation by Beijing.” — FT

Disruption Watch: Earnings, ETFs, AI, and Retail

• $Apple(AAPL)$ 23% slide since last week has knocked it off the top spot; Microsoft is once again the world’s most valuable public company. $Microsoft(MSFT)$

• Investors lost $25.7B in leveraged ETFs last week — the worst 2-day loss in the asset class’s history, eclipsing March 2020 and “Volmageddon.”

• Health insurers rallied on news the Trump administration will double the Medicare payment rate increase next year (+$25B industry-wide).

• Samsung beat earnings, easing tariff fears via strong smartphone and DRAM chip sales.

• Walmart+ now accounts for nearly 50% of U.S. digital spend on Walmart.com — the company will outline AI and loyalty strategy in Dallas this week.

• Shopify’s AI-first hiring policy remains a bellwether for how AI continues to displace traditional staffing needs in tech.

Technical Breakdown: Records and Red Flags

• S&P 500: -12% in 4 days, the largest 4-day dollar loss in U.S. stock market history (>$7.7T erased).

• $NASDAQ(.IXIC)$ posted its biggest intraday reversal since at least 1982 — up 4.6% in the morning, finished -2.2%.

• The S&P briefly dropped below 4,915, the official 20% drawdown threshold for a bear market. It closed just above, at 4,983.

Forward Focus: Eyes on Earnings + Congress

• Big Tech earnings will be watched not just for Q1 results, but management commentary on tariffs, recession risk, and potential AI budget shifts.

• Congress faces new gridlock as ultra-conservatives threaten to derail the tax cut blueprint — stalling Trump’s economic plan as markets cry out for fiscal relief.

• Tax cuts, deregulation, and Fed coordination remain the only viable policy mix that could rapidly reverse sentiment.

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This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.