Why uncertainty makes the stock market go haywire

Investors are facing a tumultuous time in the stock market as uncertainty looms large. The back-and-forth policies from the White House, particularly regarding tariffs, have left investors feeling uneasy. Alongside concerns about federal job cuts and efforts to end the conflict in Ukraine, the overall market sentiment has been disoriented, according to Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute.

Stocks have been on a rollercoaster ride, with the S&P 500 recently entering a correction phase after a 10% drop from its peak in February. While the index has slightly rebounded, it remains on the brink of correction. Overall, the benchmark is down about 5% in 2025.

Uncertainty in the market triggers volatility as investors grapple with the unknown impact of policies and events on companies’ profitability. Tariffs, for instance, can increase costs for businesses, affecting their bottom line. Additionally, the unpredictability of how other nations might respond to tariffs adds another layer of complexity. While economists believe that trade policies and job cuts won’t push the U.S. into a recession, the possibility remains open.

Barry Glassman, a certified financial planner, emphasizes that consumer confidence plays a crucial role in driving corporate profits. Investors tend to allocate their funds where they have more faith in the investments, highlighting the significance of market confidence.

The recent market uncertainty has raised numerous unanswered questions for investors. President Trump’s decision to delay tariffs on imports from Canada and Mexico led to a sharp sell-off in the S&P 500, despite the temporary relief. The uncertainties surrounding the tariff policies and potential responses from other countries continue to keep investors on edge.

Behavioral finance expert Brad Klontz believes that market turmoil is deeply rooted in human psychology and emotion. Fear and uncertainty can drive investors to make irrational decisions, leading to panic selling and losses. Klontz stresses the importance of maintaining perspective during market fluctuations and avoiding catastrophic thinking.

In times of uncertainty, investors should focus on what they can control. Reviewing asset allocation and ensuring a balanced portfolio can help mitigate risks during volatile market conditions. Diversification across different asset classes, including international stocks and bonds, can provide stability and protect against market fluctuations.

Ultimately, investor behavior poses the greatest threat to stock returns, rather than external factors like government policies. Staying informed, maintaining a long-term investment strategy, and avoiding impulsive decisions are key to weathering market uncertainties and achieving financial goals.