Time in the market vs. timing: A look at volatility and recovery 

As global markets continue to swing with exceptional volatility, both on a weekly and even intraday basis, it’s essential to step back and assess the key forces driving this instability. At the heart of it all? A complex combination of trade policy uncertainty, U.S. government credibility, and reactive investor sentiment. 

The tariff tug-of-war 

While tariffs have officially been imposed, particularly targeting China, their economic logic remains questionable. These tariffs don’t hold up under economic scrutiny. They are likely to be redefined – and not for ideological reasons, but because they lack economic sense. 

President Trump is clearly feeling the heat. That pressure is visible in market indicators like the 10-year U.S. Treasury yield and the U.S. dollar, which have been behaving in unorthodox ways. Typically, in times of uncertainty, investors flock to safety, boosting the dollar and U.S. government bonds. But that’s not what’s happening now. 

Instead, we’re seeing higher yields and a weaker dollar – a market vote of no confidence in current U.S. policies. This kind of divergence is rare for a developed economy and more commonly seen in emerging markets. 

President Trump walks back and markets respond 

After triggering fresh concerns last week by casting doubt over the Fed’s independence, President Trump has since stepped back from any threats to remove the Fed chair, a shift welcomed by markets. Similarly, he hinted at significant tariff reductions, even if not to zero, another signal that reversals may be on the horizon. 

These comments have already prompted stronger market sessions, reinforcing the point that policy tone alone can move markets. 

The time to stick to a plan and not panic 

Now is not the time to panic or pull back. Knee-jerk reactions in times of volatility can lead to missed opportunities, especially on strong rebound days like we’ve just seen. If you’re already in the market, stay the course. If you have liquidity available, consider well-timed entries. 

What we’re witnessing is a self-inflicted market downturn – not a structural collapse. This correction has likely already priced in a mild recession, even though, as the IMF revised, the U.S. economy is now projected to grow at 1.8%, down from 2.7%, but still not a recessionary outlook. 

The chart below shows historical moves in the S&P 500 that only included double-digit losses. Despite these significant pullbacks, the market has historically returned an average of approximately 10% per year. What’s the takeaway from this? It’s the time in the market, and not its timing, that ultimately matters! Remaining invested and focused over the long term remains the most reliable strategy, even during periods of uncertainty.  

Volatility reflects uncertainty, not collapse 

The wild intraday swings we’re seeing reflect heightened uncertainty, not a total collapse in fundamentals. Markets may retest recent lows but they’re also likely overreacting. The reality is that this can all change with a single policy shift – or even a single sentence from the President. 

And if history is any indication, it just might. 

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This information document is issued by Calamatta Cuschieri Investment Services Ltd (“CCIS”). CCIS is licensed to provide investment services under the Investment Services Act in Malta by the Malta Financial Services Authority. The registered address of CCIS is Ewropa Business Centre, Triq Dun Karm, Birkirkara, BKR9034, Malta. 

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