The New Era of Market Volatility

If you've felt that markets seem more turbulent than they used to be, you're not imagining things. From the sharp swings of April 2025 to recurring episodes of rapid sell-offs and recoveries, volatility has become an increasingly persistent feature of the investment landscape. As Dave Ramsey says, "the only people who get hurt on a rollercoaster are those who jump out in the middle."

The causes of this heightened volatility are multifaceted, ranging from geopolitical uncertainty to structural changes in market operations.

Policy Uncertainty and Geopolitical Tensions

One of the most significant drivers has been heightened policy uncertainty. According to the Federal Reserve Bank of St. Louis, spring2025 saw volatility readings in the 99th percentile of historical changes since 1990, with much turbulence linked to shifting expectations around trade policy and tariffs.¹

When uncertainty spans multiple domains simultaneously—trade policy, tax policy, regulatory frameworks, fiscal spending—markets struggle to price in outcomes with any confidence. The market is a nine-month forward-looking indicator; it prices in today where it thinks it will be in nine months. Broad-based uncertainty produces more pronounced swings than uncertainty confined to a single policy area.

The IMF has warned that surges in volatility are likely to become more prevalent as markets periodically catch up to underlying geopolitical risks.²

The Speed of Information in Modern Markets

Perhaps no factor has transformed market dynamics more profoundly than information speed. A generation ago, material news might take hours or even days to fully disseminate. Today, market-moving information reaches traders worldwide in seconds.

Consider the difference between markets of the 1990s and today. Back then, a fund manager might learn of significant news through a morning research call or faxed report. They'd have time to analyze, consult colleagues, and formulate a measured response. Today, that same manager receives a push notification, sees the headline trending on social media, and watches real-time market reactions unfold—all within moments of news breaking.

This compression means markets no longer have the luxury of gradual adjustment. Prices must incorporate new information almost instantaneously, leading to sharper initial moves. When uncertainty exists about how to interpret the news, the result can be rapid oscillations as participants collectively work through implications in real time.

The Role of Technology and Algorithmic Trading

Modern markets operate at speeds unimaginable a generation ago. High-frequency trading firms now account for approximately 73% of all equity trading volume in the United States.³While these algorithmic traders often provide valuable liquidity and narrow bid-ask spreads, their rapid reactions can amplify short-term price swings.

These algorithms detect patterns, react to news sentiment, and execute trades in milliseconds. When a headline crosses the wire, sophisticated natural language processing systems can parse its meaning and initiate trades before a human reader has finished the first sentence. The SEC and CFTC have acknowledged that algorithmic trading contributed to volatility during events like the 2010 Flash Crash.⁴

Algorithmic trading isn't inherently destabilizing—many studies find these systems improve market efficiency. However, speed and interconnectedness mean that when volatility occurs, it can be more intense and rapid than in previous eras.

Interest Rate Sensitivity

The current interest rate environment has created tighter links between economic data releases and market movements. BlackRock research highlights that stagflation has become a more significant risk as central banks balance inflation concerns against growth objectives.⁶

Each new economic release—employment figures, inflation readings, GDP estimates—can shift market expectations significantly. Parametric Portfolio Associates observed that at current yield levels, stocks appear more sensitive to changes in long-term bond yields, creating a negative correlation that contributes to overall volatility.⁷

Keeping Perspective

There's a saying making the rounds: the stock market is just astrology for men. They get so moody cause the NASDAQ is in retrograde. While humorous, it captures an important truth: markets can feel unpredictable and emotion-driven in the short term.

J.P. Morgan has noted that even in years ending with positive S&P 500 returns, the average peak-to-trough decline is approximately 11%.⁸ Volatility is a normal feature of investing, not an aberration to be feared.

The factors driving today's volatility—policy uncertainty, rapid information flow, algorithmic trading, interest rate sensitivity—are structural features of modern markets that investors must learn to navigate rather than avoid. History has shown repeatedly that investors who stay disciplined through turbulent periods are typically rewarded over time.