Market Volatility Persists Amid Trade Uncertainty
The US stock market has experienced a rollercoaster ride since President Donald Trump’s announcement of sweeping tariffs on April 2, with investors cautious about the road ahead despite a stronger-than-expected first-quarter earnings season.
Strong Earnings and Uncertain Outlook
Investors have pointed to a solid first-quarter earnings season as a contributing factor in soothing stocks following the tariff-driven decline. With over 70% of the S&P 500 having reported, earnings overall are on pace to have climbed 13.6% in the quarter from a year ago, according to LSEG IBES. This compares to an estimate of an 8% rise as of April 1.
However, in a reflection of the murky outlook, consensus analyst estimates for profit growth in the next three quarters of 2025 have all come down. In a note on Friday, Goldman Sachs strategists said 56% of companies had issued guidance below consensus estimates, compared to the historical average of 51%. Current visibility on the ultimate tariff landscape remains very low, said Allen Bond, portfolio manager at Jensen Investment Management.
"To the extent that we start to see some idea of how these policies take shape, companies are going to have to come out and reevaluate what that means for their businesses," Bond explained. This uncertainty has led to a rise in valuations, with the forward price-to-earnings ratio as of Monday standing at 20.6 times earnings estimates for the next 12 months, according to LSEG Datastream.
This level is well above the index’s 10-year average P/E of 18.5 and long-term average of 15.8. Several factors could make the valuation look more expensive, including the yield on the 10-year Treasury, which is around 4.3%, over 10 basis points higher than on April 2.
Higher Treasury yields tend to weigh on equities in several ways, including indicating higher borrowing costs for companies and consumers and greater investment competition from fixed income. Analysts also expect earnings estimates could fall even further because of the tariff fallout, which could mean current valuations are factoring an overly rosy outlook for companies.
"The market is starting to embed a lot of good news and is vulnerable to bad news now, which is the opposite to where we were at the lows," said Keith Lerner. "If something goes wrong, you don’t have much of a buffer for negative news."
Valuations Rising Again
The recent rebound in stocks has led to a rise in valuations, with several factors contributing to this increase. The forward price-to-earnings ratio as of Monday stood at 20.6 times earnings estimates for the next 12 months, according to LSEG Datastream.
This level is well above the index’s 10-year average P/E of 18.5 and long-term average of 15.8. Several factors could make the valuation look more expensive, including the yield on the 10-year Treasury, which is around 4.3%, over 10 basis points higher than on April 2.
Higher Treasury yields tend to weigh on equities in several ways, including indicating higher borrowing costs for companies and consumers and greater investment competition from fixed income. Analysts also expect earnings estimates could fall even further because of the tariff fallout, which could mean current valuations are factoring an overly rosy outlook for companies.
"The market is starting to embed a lot of good news and is vulnerable to bad news now, which is the opposite to where we were at the lows," said Keith Lerner. "If something goes wrong, you don’t have much of a buffer for negative news."
Nearing a Key Trend Line
Investors are now focusing on whether the S&P 500 can surpass its 200-day moving average, which is a closely watched long-term trend line. That trend line is about 2% above the S&P 500’s current level and may provide resistance against further gains.
Unless something significantly positive occurs on the trade front or another catalyst emerges, "we’re going to be hard-pressed to push through" that level, said Walter Todd, chief investment officer at Greenwood Capital. The recent rebound in stocks has led to a rise in valuations, with several factors contributing to this increase.
The forward price-to-earnings ratio as of Monday stood at 20.6 times earnings estimates for the next 12 months, according to LSEG Datastream. This level is well above the index’s 10-year average P/E of 18.5 and long-term average of 15.8.
Several factors could make the valuation look more expensive, including the yield on the 10-year Treasury, which is around 4.3%, over 10 basis points higher than on April 2. Higher Treasury yields tend to weigh on equities in several ways, including indicating higher borrowing costs for companies and consumers and greater investment competition from fixed income.
Analysts also expect earnings estimates could fall even further because of the tariff fallout, which could mean current valuations are factoring an overly rosy outlook for companies. "The market is starting to embed a lot of good news and is vulnerable to bad news now, which is the opposite to where we were at the lows," said Keith Lerner.
"If something goes wrong, you don’t have much of a buffer for negative news." The recent rebound in stocks has led to a rise in valuations, with several factors contributing to this increase. The forward price-to-earnings ratio as of Monday stood at 20.6 times earnings estimates for the next 12 months, according to LSEG Datastream.
Peak Uncertainty?
A belief that "peak uncertainty" when it comes to the tariff situation is in the past has been driving stocks higher, investors said. The Cboe Volatility index, an options-based gauge of investor anxiety, has moderated. After spiking to 52.33 on April 8, its highest closing level in five years, the VIX index has come down to around 25.
However, this is still above its long-term median level of 17.6, according to LSEG Datastream. "We do think we’re through this period of max uncertainty," said Michael Reynolds, vice president of investment strategy at Glenmede. "But to call a direction from here I think is really difficult because we could get a news release out of the White House tomorrow on new tariffs and that could completely change the game."
Conclusion
In conclusion, the US stock market has experienced a rollercoaster ride since President Donald Trump’s announcement of sweeping tariffs on April 2. Despite a stronger-than-expected first-quarter earnings season, investors remain cautious about the road ahead due to uncertainty surrounding trade policies.
The recent rebound in stocks has led to a rise in valuations, with several factors contributing to this increase. The forward price-to-earnings ratio as of Monday stood at 20.6 times earnings estimates for the next 12 months, according to LSEG Datastream.
This level is well above the index’s 10-year average P/E of 18.5 and long-term average of 15.8. Several factors could make the valuation look more expensive, including the yield on the 10-year Treasury, which is around 4.3%, over 10 basis points higher than on April 2.
Higher Treasury yields tend to weigh on equities in several ways, including indicating higher borrowing costs for companies and consumers and greater investment competition from fixed income. Analysts also expect earnings estimates could fall even further because of the tariff fallout, which could mean current valuations are factoring an overly rosy outlook for companies.
Unless something significantly positive occurs on the trade front or another catalyst emerges, "we’re going to be hard-pressed to push through" that level, said Walter Todd, chief investment officer at Greenwood Capital. The recent rebound in stocks has led to a rise in valuations, with several factors contributing to this increase.