The continuous upward trend since late March has faced challenges in the past week. Repeated fluctuations in major tech stocks have dragged down the S&P 500, intensifying its volatility to levels not seen since April 2025. An analysis by 22V Research shows that investors are increasingly divided over the economic fundamentals and monetary policy, causing market sentiment to swing sharply between risk-on and risk-off modes. Such volatility may become the new norm.
Strategists at 22V Research suggest that as investors weigh solid economic fundamentals against the prospect of tightening monetary policy, the back-and-forth fluctuations are likely to persist. The firm’s “Market Sentiment Divergence Indicator” has climbed to the 94th percentile of historical data, reflecting deepening disagreements over the direction of the stock market. Dennis DeBusschere, Chief Market Strategist at 22V Research, noted that the market is currently swinging violently between risk appetite and risk aversion, with a level of turbulence rarely seen over the years. Following the release of U.S. employment data last Friday, which far exceeded expectations and effectively dashed hopes for a rate cut by the Federal Reserve this year, market risk sentiment has been fluctuating repeatedly. That jobs data pushed the market into “risk-off mode” for the first time since January.
Over the next four trading days, the information technology sector experienced sharp swings, at times leading the S&P 500 and at other times lagging behind. The Nasdaq Composite plunged 4.8% last Friday, marking the fifth consecutive trading day with a move of 1% or more, matching the longest streak of large fluctuations since August 2024. Ken Mahoney, CEO of Mahoney Asset Management, said that after a historic rally, it is normal for the market to enter a phase of consolidation, and two-way volatility will become the norm. Following the release of last week’s jobs data, defensive sectors initially outperformed, only to be overtaken by tech stocks, with the market narrative switching repeatedly. Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, noted that a series of major events this week clearly reflects investors swinging between fear and greed.
22V Research predicts that style rotation will become more frequent, the range of market-leading sectors will narrow, and the market will switch more often between risk-off and chase-the-upside modes. Forrest stated that summer volatility could move in both directions. Investors are now closely watching the Federal Reserve’s interest rate decision next week, as well as Kevin Warsh’s first press conference as Fed Chair. Strategists at Wells Fargo said last week’s tech-driven sell-off served as a “wake-up call” for investors. JPMorgan downgraded its near-term outlook to “tactically cautious,” pointing out that investors may continue to sell off some of the previously leading AI-related companies. Bank of America strategists also warned that a growing number of “bearish signals” suggest the market may be nearing a peak. Mahoney concluded: “The market had entered a phase where you could close your eyes and buy, and still make money—but investing was never supposed to be that easy.”
