Liberation Day and The Biggest Volatility Crash of All Time

Since taking office on 20th January 2025, global tariff policy passed by the Trump administration has induced panic in financial markets and uncertainty in the global economic situation. Let’s review the timeline of events and market reactions:

1 Feb to Mar 26

• Trump begins his whipsaw of tariff policies

  • Starting on 1 Feb with 25% tariffs on Mexico, Canada, and China. This continues in an on-and-off fashion for the next 2 months.

• Market Reactions

  • U.S. stocks peak on February 19th 2025.

  • International stocks hold up much better, peaking on 18th March 2025.

2 Apr to 9 Apr

• Trump announces global tariffs with 10% baseline

  • This happens across all imports with increasingly punishing duties on the US’ biggest trading partners on what has been dubbed “Liberation Day” (2nd Apr).

  • Trump then implements a 90-day pause on most of the punishing country-specific tariffs on 9 April.

• Market Reactions

  • U.S. stocks experience swift sell-offs in reaction to the news, declining -19.18% since the peak on 19 Feb. Trillions of dollars are erased from bourses around the world.

  • US stocks bottom on 8 April.

  • International stocks bottom on 7 Apr.

Post 9th Apr

• The wanton threat of tariffs continue

  • Possibility of being levied on individual companies, countries, and regions such as the EU and China continue. But for now there’s a pause

• Market Response

  • This time, markets are less affected and scale the wall of worry onto recovery.

  • U.S. stocks are up +0.55% (YTD, 28 May 2025)

  • International stocks (excl. US) are up +13.68% (YTD, 28 May 2025)

US has levied a high of a 145% tariff on goods from China, while China has retaliated with a 125% tariff on US goods.
On May 12 the US agrees to cut that to 30%, and China reduces theirs to 10% in response.

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Volatility Crash

The CBOE Volatility Index (VIX Index) was created by the CBOE Options Exchange. It provides investors with quantifiable measures of market risk and sentiment. It is also used as a parameter in the calculation of buying protection on stocks.

Around that same period, the VIX Index (6-week) just experienced the biggest crash of all time, reversing from a peak of 52.33 (high fear) to a low of 17.15. This decline of more than 67% reflects the rapidly changing sentiment and risk appetite in markets. It is reasonable to believe the events above had something to do with it.

As a result, from the bottom (to 28 May):

U.S. stocks rallied +18.76%
International Stocks (excl. US) rallied +19.92%

This is consistent with the historical record after huge reversals in risk appetite. Such environments have been positive as it relates to forward returns for markets.

As you can see from the chart above, 6-Month, 1-Year, 3-Years, and 5-Years later, market returns after such an event are higher on average as compared to the average of all other periods.

Investor Takeaway

• Diversification reduces single country idiosyncratic risk.
  By focusing on global stocks, investors are able to capture returns anywhere it shows up in the world without a bias for a specific market while reducing risk.

• Remaining invested is key to capturing important recovery gains.

• Missing out on strong recovery returns can cost you significant returns.

After an eventful start to 2025, we have navigated the volatility well, conducting opportunistic buying of securities at lower prices while implementing protection to preserve capital.

We continue to be data-driven, watching risk, and making decisions in a systematic framework to ensure that we continue to Grow Your Capital.

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