Markets
Since tariff plans were introduced by the Trump administration early in the year, investors have seen a dramatic 19% decline in the S&P 500 followed by a rally that is approaching market highs in 2025. It’s been a sobering turn of events for investors who have enjoyed several years of consistently strong returns. While the volatility index has spiked to numbers not seen since the COVID-19 pandemic and the Global Financial Crisis, there is opportunity for investors who remain steadfast and focused on their long-term goals. In this article, we explore what’s driving markets at the moment and provide perspective on the inherent opportunity within market volatility.
Volatility Index (VIX)
Source: Bloomberg
The chart above shows the Chicago Board Options Exchange Volatility Index (VIX). The VIX is a volatility measure of the S&P 500 and is calculated using real time options trading.
Tariffs and market volatility a key theme of 2025
In our earlier article, Key themes investors should follow in 2025, we said tariffs and the Trump effect would be major factors in markets this year, which is exactly what has played out. In the first five months of 2025, investors have weathered tariff threats, pauses, ‘Liberation Day,’ reciprocal tariffs, universal tariffs and many other unclear directives from the Trump administration. While keeping up with these announcements and trying to understand every nuance can be overwhelming, tariffs are ultimately inflationary, and increase the cost of goods and services to consumers. For equity markets, that means periods of volatility and market corrections like we’ve recently seen. While tariffs increase cost by adding what amounts to a tax on imports, another intention is to protect local industries (protectionism). For example, the US administration's long-term goal is to create more jobs within the country by onshoring various assembly and manufacturing currently happening outside of the US. That said, the impacts of tariffs are complex and widely contested, and may result in a reduction of jobs as companies look to automate or relocate. North American equity markets have generally lagged global markets in response to tariffs as seen in the chart below. This is due to a variety of factors discussed in the paragraph below.
Year to date Index Performance
What does this mean for my investment portfolio?
Generally speaking, while tariffs can have a positive impact by protecting local industries, they tend to increase costs, which has an inflationary effect. In fact the International Monetary Fund1 revised its global growth outlook down in response to the current changes to trade policy. This impacts publicly traded companies in a variety of ways. Profit margins may decline and company growth expectations may be revised down as they adjust business plans to respond to the new normal. For example, the North American auto industry is highly integrated, with Canada and Mexico working together with major US companies such as Ford and General Motors. The additional cost of tariffs is sometimes passed to the consumer or borne, at least in part, by the company. As analysts and investors re-evaluate their growth, valuation and other financial assumptions for each impacted company, investment decisions are made based on goals and time horizons. For our investment portfolios and equity markets, this usually means periods of volatility and market corrections like we’ve recently seen.
There are always opportunities to explore
The volatility we are seeing in the market is significantly influenced by constantly changing trade rhetoric. These discussions change various economic assumptions, which can significantly impact both current and future financial expectations for companies. Throughout all of this, it's important to remember that even through some of the most dramatic market crashes, investors focused on long-term returns almost always fared well (read more about that in this article about timing the markets). Also, different geographical and sector investments can provide the diversity your portfolio needs to reduce regional volatility. Finally, ensuring your asset class weights are appropriate for your risk tolerance can help ease the volatility in your portfolio. In Are bonds safe haven assets in volatile markets?, we explore how fixed income can also fortify your portfolio.
“World Economic Outlook (April 2025).” International Monetary Fund. April 2025.
ATB Wealth® (a registered trade name) consists of a range of financial services provided by ATB Financial and certain of its subsidiaries. ATB Investment Management Inc. and ATB Securities Inc. are individually licensed users of ATB Wealth. ATB Securities Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
The information contained herein has been compiled or arrived at from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness, and ATB Wealth (this includes all the above legal entities) does not accept any liability or responsibility whatsoever for any loss arising from any use of this document or its contents. This information is subject to change and ATB Wealth does not undertake to provide updated information should a change occur. This document may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions and conclusions contained in it be referred to without the prior consent of the appropriate legal entity using ATB Wealth. This document is being provided for information purposes only and is not intended to replace or serve as a substitute for professional advice, nor as an offer to sell or a solicitation of an offer to buy any investment. Professional legal and tax advice should always be obtained when dealing with legal and taxation issues as each individual’s situation is different.
ATB Wealth experts are ready to listen.
Whether you're a beginner or an experienced investor, we can help.