It was the fourth worst two-day market slide in half a century. And if analysts at UBS are right, the turbulence isn’t over yet.
Global markets have shed more than 10% since US President Donald Trump announced sweeping new tariffs on 2 April, imposing a 10% baseline levy on all imports and higher rates on nearly 90 countries.
China struck back within days with a 34% tariff on US goods, and the European Union is preparing its own retaliation on top of countermeasures already announced.
According to UBS’s global investment team, we’ve now entered a “high-volatility, low-visibility” zone – and investors should prepare for more swings before a recovery takes hold.
VIX blinking red
We are seeing “pointed to signs of illiquidity, deleveraging, and market stress”, wrote UBS strategists in their Monday note, pointing to a spike in the VIX volatility index and widening credit spreads as evidence of deep market unease.
Adding to the pressure, Federal Reserve chair Jerome Powell signalled caution on interest rate cuts, saying the inflationary impact of tariffs could be “more persistent” than expected; not exactly the safety net markets were hoping for.
The bigger issue, UBS argues, is that no one really knows what Trump is aiming for.
There are multiple theories: he’s manufacturing leverage to force quick trade deals, he’s serious about making tariffs permanent, or he’s ready to push the US into recession to force global realignment.
The problem is, that markets hate uncertainty even more than they hate bad news.
Path through the storm?
That said, the Swiss bank still sees a path through the storm. Its base case is that, after a rocky second quarter, effective US tariff rates will begin to fall by the autumn as legal and political resistance builds and Trump strikes country-by-country deals.
In that scenario, with help from an expected 75–100 basis point Fed rate cut, UBS believes the S&P 500 could recover to 5,800 by year-end.
But it’s a big “if.”
Near-term catalysts are limited. A court challenge to halt the tariffs could offer a reprieve - but UBS doubts big US firms will take the fight to Washington.
Delays or exemptions could soften the blow, but the Trump administration has shown little appetite for backing down. Instead, investors should brace for potential escalation, including the removal of exemptions on semiconductors and pharmaceuticals - a move that could hit tech stocks hard.
What next?
What’s an investor to do? UBS offers three strategies. First, hedge against downside risks using capital preservation tools. Second, look to trade high-volatility assets like currencies.
And third (for those with a long time horizon) consider staying the course. History shows that buying into bear markets can pay off: In the 12 times the S&P 500 has fallen 20% since 1945, it has delivered an average 29% return over the next three years.
For now, though, the message is clear: Markets are rattled, the outlook is murky, and the landing gear isn’t yet down. Hold tight.