VIX in the 20s

Have We Reached a New Normal or Is This the Calm Before the Storm?

For what was a pretty busy news cycle last week, the markets ended up relatively unmoved. The VIX is hovering in the lower 20s, a sign that investors seem to be settling into a new normal post-Liberation Day, but also an indication that their guard is still up. Despite some good news, there are still too many unknowns related to tariffs to feel much better about where conditions are right now.

The Fed delivered a message following their meeting this week that was pretty much exactly as expected. They held onto their wait-and-see approach, citing the ongoing tug of war between higher inflation and slowing growth risks. Honestly, this is probably the right take from Powell. We have relatively little hard data to work with, but what we’ve gotten to this point suggests that both are progressing. We still don’t have a good sense of which one might win out and I don’t think the Fed will adjust policy until there’s more clarity. At the earliest, I think that pushes the first potential rate cut until the middle of the summer, if not later.

We finally got our first (tentative) trade deal of the post-tariff era. The announcement between the U.S. and the U.K. isn’t really a needle mover and what was revealed is largely just targeting specific products as opposed to broad tariff relief. The markets didn’t offer a strong response and that’s reflective of the minor impact this is likely to have. Trump is talking about reducing the China tariff rate, which would be a better sign, but we’ve seen these kinds of stops and starts throughout both of Trump’s presidential terms. A reduction in the effective tariff rate would be a positive for the economy and the financial markets, but unless we’re talking about a major trade easing closer to pre-tariff days, it likely doesn’t change the fact that global recession is still a major risk.