Have financial markets reached peak uncertainty?

Markets feel like they’re hanging by a thread. Everyone’s nervous. Nobody agrees on anything. Traders don’t trust forecasts. Investors don’t trust the Fed. The government doesn’t even trust itself.

And when that kind of chaos shows up, some believe it means one thing—buy. But figuring out if this is really the peak of uncertainty is the hard part.

Right now, all eyes are on April 2. That’s when Trump’s “reciprocal” tariffs are supposed to kick in. Nobody knows what they’ll look like. Nobody knows how broad or how harsh they’ll be. Just the threat of them has already shaken everything. There are also new immigration restrictions, messy federal budget cuts, and a slow-burn consumer confidence collapse. The disaster is everywhere.

Trump’s vague tariff threat sparks reactions

On Friday, the S&P 500 opened weak, dropping 1% early in the session. But then Trump said the tariffs might have “some flexibility.” Nothing concrete. Just a random, soft line. Still, the market climbed back and closed slightly up. After weeks of swinging back and forth on headlines, it didn’t take much to move the needle.

This is the kind of wild mood swing traders are living with. Renaissance Macro Research says it’s not new. They’ve tracked the U.S. Economic Policy Uncertainty Index for decades. And when the index hits the top 10% of its range—like right now—future equity performance has usually been strong. They say the S&P 500 gains an average of 8.8% over the next three months, and it goes up 80% of the time. When uncertainty is low, markets barely move—only 36% of the time does it rally.

Right now, the index is past Covid panic levels. And Sunday marked five years since the 2020 bottom, where fear peaked and the S&P 500 shot up 100% over 22 months. That’s the backdrop we’re in. But this time, something’s off.

Fed sees no clear path forward

The Federal Reserve doesn’t sound any more confident than investors. After their latest meeting, the Fed left rates unchanged and stuck to their cautious stance—maybe a half-point cut later this year. But even that wasn’t certain. Jerome Powell, the Fed chair, admitted, “I don’t know anyone who has a lot of confidence in their forecast.”

Michael Feroli, an economist at JPMorgan, plotted out the risk bias of FOMC members. The results weren’t pretty. Most of them think inflation risk is still rising, while GDP growth risk is falling. The Fed is pulled in two directions. That’s a bad look when they’re supposed to balance both.

We’ve seen this same split before. Late 2022. Inflation was peaking. Recession calls were everywhere. And then the S&P 500 bottomed, down 25% from its high. That was the turning point. But back then, markets were actually panicking. This time, not so much.

The recent correction in the S&P 500 barely hit the 10% threshold. That bounce from the lows happened fast. But that doesn’t mean things are calm. The market hasn’t priced in what these tariffs might actually do. It hasn’t moved the way it did in early 2020 or late 2022. And most people still don’t know what to believe.

Tariffs and recession risks stack up

Warren Pies, founder of 3Fourteen Research, crunched the numbers on past corrections. He looked at 52 corrections since 1950. His takeaway? Once the market drops, there’s a 58% chance it becomes a “serious correction” of at least 15%. But in 28 of those 52 cases, there was no recession in the next 12 months. And of those, only 12 turned into serious corrections. The message: if there’s no recession, deep crashes are less likely.

But it still happens. We got a non-recession bear market in 2022. So nothing’s off the table. Tariffs are a real threat. Not just psychologically, but because if they escalate, they could slow the economy hard. It’s not just about higher prices. It’s about messing with demand, trade flows, business planning, and investment.

Right now, the corporate credit market is holding up. That’s good—for now. Jobless claims are low. Consumers are spending less, and retail stocks are feeling it. Travel too. But household debt isn’t out of control, and industrial production just hit a record. That’s never happened right before a recession, at least not historically.

Still, about 40% of all 10% drops in stocks go down at least 15%. It doesn’t always take a recession to wreck the market. Bottoms don’t just pop up out of nowhere. They’re nasty. Ed Clissold, strategist at Ned Davis Research, says after a first rebound, there’s usually a phase of churning and retesting. “The Feb. 19 peak in the S&P 500 to the March 13 low was 16 trading days,” he said. “Another 16 days would bring us to April 4, near President Trump’s April 2 deadline for tariffs.” If tariffs are the driver of the drop, that deadline might be the turning point—or not.

Mega-cap tech leads the slide

People keep blaming tariffs for the market slump. That’s part of it. But the biggest drag didn’t come from companies hurt by trade. It came from the Magnificent Seven—the giant tech names. The other 493 stocks in the S&P 500 are slightly up this year and are less than 6% off their highs.

Last week, traders were watching closely to see if the snapback rally would stick. It didn’t. The S&P 500 finished the week up just 0.5%. It couldn’t break past the 5,700 mark. It tried three times and failed. It closed at 5,667, the same level it peaked at in mid-July, back when Mag7 dominance was at full tilt. So far, it’s only recovered 25% of its drop.

The low from seven trading days ago still looks like a possible turning point. Sentiment dropped enough to let a rebound happen. But investor positions didn’t get fully reset. The Volatility Index spiked near 30, then fell under 20. That kind of drop usually signals the worst might be over. But not always.

In just three weeks, the S&P 500 shed two points of P/E. But earnings haven’t saved the day. The latest reports from Nike and FedEx came in weak, and their stocks got punished. Even with the drop, the forward P/E is still over 20. And that’s too high if GDP forecasts keep falling.

Goldman Sachs and RBC Capital both cut their year-end S&P 500 targets. Sometimes that resets expectations. Sometimes it just confirms that nobody knows what’s coming. Right now, the White House seems more focused on programming headlines than calming market nerves.

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