Tariff Turbulence Fades, Underlying Trends Hold Firm

Executive Summary

Markets were choppy last week as policy headlines drove shifts in risk sentiment. Tariff-related developments sparked early-week volatility, though conditions stabilized as concerns eased. The S&P 500 finished the week in negative territory for the second consecutive week, where leadership continued to rotate beneath the surface. Small-cap, value, and equal-weight indexes outperformed, while technology stocks and the growth factor weighed on market-cap-weighted benchmarks.  One of the signals of a regime change is that leadership presents itself not just on up days, but on down days. Early last week, the value factor beat growth and small cap outperformed big cap on “risk on” and “risk off” days.  In fixed income, Treasury yields rose across the curve, causing bonds to trade lower. Corporate credit spreads remained extremely tight by historical standards (Figure 3). Commodities were an area of strength, with gold rallying to new highs amid the policy uncertainty. 

Key Takeaways

1. Policy Headlines Trigger Brief Tariff Scare. Markets were rattled last week after reports that the White House threatened new tariffs on European countries tied to negotiations involving Greenland. The headlines sparked a spike in volatility early in the week, with stocks and the U.S. dollar selling off as investors reacted to the prospect of renewed trade tensions. Treasury yields moved higher, with the 10-year yield reaching its highest level since August (Figure 2), while gold climbed to a new high as investors sought defensive positioning. The rise in global bond yields was briefly aggravated by last week’s surprise election call in Japan with a platform focused on more unfunded fiscal stimulus.  The main headwind is that U.S. and global bond yields may lose an important anchor market that helped maintain low yields for decades.  Volatility eased later in the week after U.S. officials walked back the tariff threat and signaled a potential deal framework, helping stocks to rebound. Implication – The market’s reaction was driven more by uncertainty, reinforcing how short-term news can generate market volatility without necessarily changing long-term fundamentals.  

2. Big Picture Trends Remain in Place. The market’s major trends remain intact despite headline driven volatility. Leadership continued to broaden beyond mega-cap technology stocks, with small cap and equal-weight indexes outperforming and signaling stronger participation beneath the surface even as headline indexes declined (Figure 1). While major indexes pulled back, the underlying rotation suggests investors are reallocating rather than exiting equities. In the bond market, Treasury yields continued to rise across the yield curve, and corporate credit spreads remained tight. Meanwhile, gold continues to push to new highs, reinforcing its role as a hedge against policy uncertainty and market volatility. Implication – The volatility didn’t disrupt underlying market trends. The continued strength of assets like gold, alongside shifting equity leadership, highlights how diversification can help portfolios navigate uncertainty and volatility.  

3. Economic Conditions Largely Unchanged. As the data backlog created by the government shutdown continues to be cleared, the economic backdrop appears broadly unchanged. Labor market conditions continue to cool, industrial activity is soft, and housing demand is stabilizing , while consumer spending has proven resilient.  Home price appreciation is becoming flatter, with growth expected to be a modest 2% to 3%, closely following inflation.  Finally, 2026 is expected to see the slowest new single-family construction since 2019, as builders pull back, yet continue to offer incentives like rate buydowns.  Implication – This mixed but stable backdrop hasn’t generated new inflation or growth signals that would require a policy shift. It allows the Federal Reserve to remain patient and monitor how these trends evolve before considering additional policy changes.  

4. Fed Meeting Preview. Markets head into this week’s Federal Reserve meeting expecting no change in policy. Investors expect the Fed to leave interest rates unchanged, as inflation continues to ease while economic growth and the labor market remain resilient. This combination gives policymakers little urgency to move quickly. Implication – Markets will be focused on how officials frame inflation progress and their thinking around the timing of potential rate cuts later this year.  

5. Gold and Bitcoin Diverge. Gold and Bitcoin moved in different directions last week (Figure 4), underscoring how the two assets can behave differently despite being grouped together. Gold rallied to new highs amid policy uncertainty and demand for defensive positioning, while Bitcoin gave back last week’s gains. Implication – The divergence highlights that while both are viewed as alternative assets, they tend to respond to different market forces. Gold is more tied to defensive and hedging demand, while Bitcoin is more sensitive to shifts in risk appetite.  The three primary themes driving Gold purchases are U.S. dollar debasement concerns, fiscal deficit threats and global central banks buying. 

Robertson Stephens paid no fee to obtain recognition but has paid licensing fees to reference its appearances on the Newsweek, USA Today, and FA Magazine rankings lists. See Awards Disclosures