(March 21): A fresh bout of instability gripped the stock market as concern around the potential impacts of a trade war outweighed the latest housing and jobs data showing the world’s largest economy is still holding up.

Equities erased earlier gains. Not only does sentiment remain fragile just a week after the S&P 500 slipped into a correction, the market is set for a big test on Friday. That’s when an estimated US$4.5 trillion (RM19.92 trillion) of options contracts expire in an event ominously known as triple witching that often stokes volatility. In late hours, FedEx Corp — an economic barometer — sank after cutting its profit outlook. Micron Technology Inc. gave an upbeat sales forecast. Nike Inc’s results surpassed analysts’ expectations.

“While the bottom of the recent correction is likely in, we probably haven’t seen the end of volatility,” said Daniel Skelly, head of Morgan Stanley’s Wealth Management Market Research & Strategy Team. “Policy uncertainty hasn’t disappeared, and the market remains sensitive to sentiment shifts.”

After keeping rates steady this week, Federal Reserve Chair Jerome Powell downplayed growth concerns and the price hits that could be on the way from a trade war. President Donald Trump’s administration is preparing to announce a fresh wave of tariffs on April 2, though the exact scope isn’t clear.

“We will go up and down as policy uncertainty continues,” Michael Rosen, chief investment officer at Angeles Investments, said in an interview at Bloomberg headquarters in New York. “Investor sentiment is going to be very volatile, and that will be reflected in the market.”

The S&P 500 fell 0.2%. The Nasdaq 100 slid 0.3%. The Dow Jones Industrial Average wavered. Megacaps were mixed, with Apple Inc down and Nvidia Corp closing higher. A gauge of homebuilders advanced after a surprisingly solid reading on existing home sales.

The yield on 10-year Treasuries was little changed at 4.24%. The dollar rose 0.3%. The pound held losses as the Bank of England voted to stay put on rates amid a turbulent global backdrop.

“With any luck, the administration will repackage its messaging on tariffs where it should be, which will help remove the uncertainty that is plaguing markets at the moment,” said Jamie Cox at Harris Financial Group.  

At Bespoke Investment Group, the strategists say the S&P 500 is looking to find some semblance of stabilization from what has practically been a straight down leg lower.

“Stabilisation doesn’t mean immediately reversing and trading in a straight line higher,” they added. “Usually, it takes a period of back-and-forth churning before the market can gain enough energy to stage a rally.”

Bespoke also highlighted the weekly survey from the American Association of Individual Investors showing that bearish sentiment came in at 58.1%. That marks the fourth straight week of readings above 55%, which has never happened in the survey’s history, the Bespoke strategists noted.

“Stocks have staged a respectable recovery since the mid-March lows, and while it remains to be seen if the lows are in, the market action over the past month is extremely consistent with a correction and not a bear market,” said Clark Bellin at Bellwether Wealth. “We remain invested and are using the pullback in valuations across sectors to our advantage.”

To Solita Marcelli at UBS Global Wealth Management, optimising cash holdings and seeking durable income should remain a strategic priority. Cumulative returns on US stocks are more than 200 times higher than for cash since 1945, underlining that the long-term underperformance of cash is a structural phenomenon, she noted.

“We recommend staying invested in stocks with hedges, and think that quality fixed income should remain an integral part of a resilient portfolio,” Marcelli said. “Investors can also consider diversified fixed-income strategies, senior loans, private credit, and equity income strategies to build diverse and durable portfolio income.”

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