After a long period of steady, quiet growth, the S&P 500 volatility index finally broke through the 20-point mark. It is still far from the highs we saw on April 8, when hopes for last-minute delays or concessions on tariffs before the midnight deadline faded, but what really stands out is the fact that market jitters are returning.
What is worrying investors?
It’s not just the ongoing U.S. government shutdown that is causing uncertainty due to delays in the release of key data, which, according to Treasury Secretary Scott Bessent, is already beginning to affect the real economy. The primary concern for investors is the resurgence of the trade war between the US and China.
Coincidence or not, just before the planned meeting between Trump and Xi Jinping at the Asia-Pacific Economic Cooperation summit in South Korea, Beijing announced new restrictions on exporting rare earth metals essential for chip manufacturing and electric vehicle production, and introduced port fees for U.S. ships.
In response, Trump declared that the U.S. would impose an additional 100% tariff on Chinese products starting November 1, 2025. The Nasdaq and S&P 500 fell sharply after the news, but recovered partially on Monday following more moderate statements over the weekend. However, on Tuesday, confidence shifted again.
What to expect next?
If tensions between the United States and China continue to escalate, it will be tough for markets to perform well. Even so, investors seem to be hoping the president will fall back on his famous “TACO” strategy, which stands for “Trump’s Always Chickens Out,” if market sentiment starts to spiral again.
A strong earnings season could also act as a safety net for the markets.
So far, Goldman Sachs has reported a 37% increase in quarterly profits to $4.1 billion, driven by strength in investment banking and trading. JPMorgan also posted higher profits, thanks to gains in its trading division and a rebound in investment banking fees. Citigroup, Wells Fargo, and BlackRock have also reported solid results.
Overall, analysts at FactSet expect S&P 500 companies to grow earnings by 7.9% compared to last year, making it the ninth quarter in a row of profit growth. If that happens, it should help support the market. However, strong earnings might not be enough to stop a market pullback if the tech sector struggles.
Looking further ahead, Morgan Stanley expects rising profits, broader AI use, and easier rates to boost the S&P 500 by about 12% by mid-2026. JPMorgan forecasts the index could hit 7,000 by early 2026, driven by strong corporate spending and AI growth. Some analysts even see a “bubble scenario” with the index reaching 9,000.
This article was written by IL Contributors at investinglive.com.