A Rally Reversed — Volatility Returns, and So Do Old Fears

April 10, 2025

What a difference 24 hours can make. Yesterday’s historic market rally, driven by a dramatic tariff pivot from the White House, unraveled quickly today as investors confronted the real issues: policy uncertainty, economic fragility, and the psychological whiplash of market chaos.

Markets: When Psychology Drives Price Action

WS in the Fog

This week’s Story Time Thursday couldn’t be more timely: uncertainty triggers deeply rooted psychological biases that distort investor behavior.

We explored three behavioral finance concepts and “hacks” to work around them:

• Prospect Theory: Investors feel losses ~2x more intensely than gains. Yesterday’s gains felt fleeting; today’s losses feel permanent.

• The Marshmallow Test: Delayed gratification is hard — especially during high volatility. Staying the course is more difficult because short-term noise is so loud.

• Iowa Gambling Task: People often persist in poor strategies when stressed. Panic selling, revenge trading, and over-leveraging become tempting in turbulent times.

"Acknowledging the mental traps is half the battle. The other half is having rules, routines, and risk controls in place when volatility strikes."

Data: Mixed Macro — Resilient Jobs, Weak Consumers

Two key reads from this morning paint a conflicted picture:

• Initial Jobless Claims stayed low, confirming ongoing labor market resilience — for now. Labor hoarding may still be in play, but future claims will tell us how it holds up post-tariff turmoil.

• Gasoline demand declined 2–3% even as prices dropped ~9–10%. That’s a red flag: discretionary consumer spending is softening, a troubling trend for Q2 GDP.

Disruption: Tech’s 3-Sigma Drawdown Becomes a Test Case

• From peak to last Friday, the Nasdaq 100 and US large-cap Tech fell over 20% in just 50 sessions — a 3 standard deviation move, seen just 0.5% of the time since 2015.

• Historically, this setup has led to strong forward returns over the next 50 sessions:

  QQQ: +16.3% avg. gain

  $Technology Select Sector SPDR Fund(XLK)$ : +23.3% avg. gain

• $NASDAQ(.IXIC)$ : -4.3% $NVIDIA(NVDA)$ $Apple(AAPL)$

• $S&P 500(.SPX)$ : -3.5%

• Dow: -1,015 pts / -2.5%

Roughly 40% of yesterday’s gains erased, as investor nerves returned with a vengeance. Despite soft CPI and the potential for Fed support, tariff chaos and global uncertainty overwhelmed sentiment.

CPI Surprise: Too Little, Too Late?

• Headline CPI: -0.1% MoM, first decline since May 2020

• Core CPI: +0.1% MoM, below +0.3% est.

• Y/Y inflation: 2.4%, vs. 2.6% expected

Inflation

Tariffs: The Real Rate is 145%, Not 125%

The White House clarified that total tariffs on China now add up to 145% — not the 125% figure Trump cited yesterday.

Businesses are reeling:

• Confusion is rampant.

• Customs brokers report rising frustration and a sense of “madness.”

• Capex plans are frozen as companies await clarity that’s nowhere in sight.

Earnings Preview: Banks First to Face the New Normal

Todaykicks off Q1 earnings season with reports from:

• $JPMorgan Chase(JPM)$

• Morgan Stanley

• Wells Fargo

Analysts expect:

• Mixed results from Wall Street banks.

• Soft loan growth, murky consumer trends.

• Strong trading, weak dealmaking (IPOs, M&A, underwriting all hit by volatility).

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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.