By Krystal Hur
A rekindled trade war. Loan losses at regional banks. A growing unease about the prolonged run-up in artificial intelligence stocks. The combination has triggered the most turbulent stretch for the markets since April, with volatility putting investors on edge and the hottest trades in jeopardy.
No single threat alone was enough to knock stocks off stride for long. In fact, all three major indexes closed the week higher, with the S&P 500 rising 1.8% to close back near records. But the abrupt end of the calmest stretch in years rattled traders and left many betting that the swings will continue.
One big gainer: the Cboe Volatility Index, or VIX. Known as Wall Street's fear gauge, the VIX tracks expectations for stock swings over the next 30 days, based on what investors will pay for options tied to the S&P 500 index. When fear is rising, traders are typically more likely to pay up for options to protect their portfolios, meaning the VIX tends to spike when the market swoons.
The VIX rose as high as 28.99 on Friday, its most elevated midday level since late April. Investors are also piling into options that would pay out if the VIX surges to 47.5 and 50, according to Cboe Global Markets data.
"The laundry list of worries is actually increasing," said Jordan Rizzuto, chief investment officer of GammaRoad Capital Partners. "This is the environment where we should expect higher volatility."
The resurgence of volatility greeted investors in a particularly anxious place. A steep fall in shares of regional banks is raising worries that the economy is weaker than it appears and that a renewed trade fight with China could tip it into recession. Some investors have also begun to question the bets on artificial intelligence that helped carry stocks from their April lows to new all-time highs.
Yet banks just posted blockbuster earnings, with many analysts saying the pockets of trouble in their loan portfolios seem isolated. Tax cuts and regulatory rollbacks are poised to further boost corporate coffers. And President Trump on Friday signaled confidence about reaching a new accommodation with China.
Stocks were headed for records a week ago when Trump threatened "massive" new tariffs on Chinese goods, a response to China's new export restrictions on rare earths, which are critical components of semiconductors, electric vehicles and jet fighters. His social-media post drove stocks to their worst day since April and ended a 33-day run in which the S&P 500 didn't notch a daily move of 1% or more -- its longest such stretch since January 2020.
The trade back-and-forth whipsawed stocks all week, even after big banks including JPMorgan Chase and Bank of America reported strong earnings and said the economy remains sturdy. Then, Zions Bancorp said it would take a large loss and revealed accusations of fraud against a set of borrowers with ties to a number of other lenders, sparking steep declines in a regional banking sector already hit by the recent high-profile bankruptcies of auto supplier First Brands and auto lender Tricolor.
Solid quarterly reports from Fifth Third Bancorp and Truist Financial on Friday helped spark a rebound, along with comments from Trump that the U.S. is "going to do fine with China."
But even as stocks recovered, investors were seeking refuge in assets known for their stability during periods of slowing growth or market turmoil. While banks and energy companies have been among the worst-performing S&P 500 sectors in October, the leaders include relatively stable groups known for paying hefty dividends, such as utilities, healthcare and consumer staples.
The yield on the 10-year Treasury note, which falls when bond prices rise, settled Friday at 4.006%, near its lowest levels of the year, according to Tradeweb. Gold futures, which have hit repeated records this year, rose 5.4% to $4,189.90 a troy ounce, their best weekly performance since May.
Meanwhile, some of the riskiest investments have suffered bruising declines. The price of bitcoin fell around 8.7% this week, its worst weekly performance since February. Shares of Opendoor Technologies, a popular meme stock that caught fire this year, slumped 5.4%.
To be sure, some analysts said that the recent declines don't necessarily portend a prolonged selloff, and were even welcome after signs of froth in a market that had run up so far, so fast. Matt Wittmer, a portfolio manager at Allspring Global Investments, says his firm is overweight in financial stocks such as JPMorgan and Citigroup, and stood pat through the stomach-churning moves in recent days.
"When events like this come up, I think it's healthy. It shows that the market is not getting too far ahead of itself," said Wittmer.
Some investors fear that markets are particularly susceptible to disruption now, when the extended rally has stretched corporate valuations, making the biggest stocks historically expensive. They also worry that the explosion of volatility could expose problems masked by the prolonged period of calm.
GammaRoad's Rizzuto says that the high valuations and the market's concentrated gains in big tech stocks are reminiscent of past periods of exuberance that later gave way to deep stock declines, such as the dot-com bubble in the late 1990s.
"This is not to say that history will repeat itself, but it certainly rhymes," said Rizzuto.
Write to Krystal Hur at krystal.hur@wsj.com
(END) Dow Jones Newswires
October 17, 2025 17:07 ET (21:07 GMT)
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