Market Volatility: Investment Insights Amidst a Bumpy Ride

Over the past century, no asset class has rivaled the annualized returns of stocks. However, navigating Wall Street can be challenging, as illustrated by recent market fluctuations.

On February 19, the S&P 500 (SNPINDEX: ^GSPC) reached an all-time closing high. Since then, both the Dow Jones Industrial Average (DJINDICES: ^DJI) and S&P 500 have entered correction territory, while the growth-friendly Nasdaq Composite (NASDAQINDEX: ^IXIC) has plunged into a bear market.

Market corrections are a common occurrence, but April has been notable for the rapid swings observed in the major indices. On April 9, the Dow, the S&P 500, and the Nasdaq Composite each recorded their largest single-day point gains in history. However, the S&P 500 also experienced a significant 10.5% drop over two days from April 2 to April 4, marking its fifth-worst two-day decline in the last 75 years.

Image source: Getty Images.

Such dramatic fluctuations are rare and often present unique investment opportunities. Although the causes of this volatility are expected to persist, the S&P 500 recently achieved a rare milestone that may provide investors with optimism.

Market Challenges Ahead

Market corrections, bear markets, and crashes rarely stem from a singular issue. Currently, several challenges are impacting Wall Street’s performance, with President Trump’s tariff policy as the main focus. Approximately four weeks ago, Trump announced a 10% global tariff targeting specific countries with trade deficits with the U.S. On April 9, he placed a 90-day pause on reciprocal tariffs for all countries except China, the same day major market rallies began.

Performance of Wall Street’s major stock indexes since Trump’s tariff announcement. ^DJI data by YCharts.

While tariffs can generate additional revenue for the U.S. and make American goods more competitive, they could also strain trade relations with allies. Retaliation through tariffs could raise prices for American products in foreign markets.

Additionally, Trump’s tariff strategy could contribute to inflation. Tariffs on imported goods used in U.S. manufacturing may lead to increased production costs, rendering those goods less competitive.

This uncertainty arrives as the Atlanta Federal Reserve’s GDPNow model forecasts a sharp decline in U.S. GDP, the most significant drop outside of the COVID-19 pandemic era since the Great Recession. If the GDPNow estimate holds and shows a 2.5% contraction in first-quarter GDP, corporate earnings growth may naturally slow or decline.

Other headwinds facing the market include the S&P 500’s relatively high valuation and increasing Treasury bond yields, potentially elevating borrowing costs.

Image source: Getty Images.

Positive Signals for the S&P 500

Heightened volatility often encourages investors to seek historical correlation data to anticipate future market moves. While no method guarantees outcomes, some indicators have strong track records in forecasting stock returns.

On April 22-24, the S&P 500 experienced a rare occurrence, finishing up by 2.51%, 1.67%, and 2.03%, respectively. This marked the 11th time since 1950 that the index gained at least 1.5% for three consecutive trading days.

As noted by Ryan Detrick, Chief Market Strategist at Carson Group, these instances of substantial gains are historically predictors of robust market performance in the following year.

The S&P 500 is up at least 1.5% for three days in a row.

This isn’t typical for bear market rallies. It precedes periods of strong performance.

Higher 10 out of 10 times a year later and up 21.6% on average. pic.twitter.com/kfvfNKq6IK

— Ryan Detrick, CMT (@RyanDetrick) April 25, 2025

In the 10 previous occurrences where the S&P 500 logged gains of at least 1.5% over three consecutive sessions, the index saw a positive return in the following year 100% of the time. Moreover, these stretches of optimism often resulted in substantial average gains.