Investors Brace for Summer Market Volatility Amid Geopolitical and Trade Risks

As summer trading volumes typically thin out, global investors are preparing defensively against a potential market downturn similar to August 2024’s sharp selloff. Concerns are rising over unpredictable geopolitical events, particularly the fragile Israel-Iran ceasefire, and economic pressures such as oil price volatility and pending trade decisions. Investment managers are increasingly uneasy, fearing that the calm in equity markets may not last long.

With the July 9 deadline for a U.S.-EU tariff deal fast approaching and no clear progress, analysts say complacency may quickly turn to panic. Investors are particularly worried that without concrete trade resolutions, markets could react strongly. HSBC and Goldman Sachs are among the institutions recommending protection strategies like equity put options and volatility-focused investments, highlighting expectations that markets are pricing in overly optimistic outcomes.

Despite global stocks hitting new highs and the VIX currently showing low volatility, futures linked to the VIX suggest traders expect a spike around early July. Analysts explain that automated trading strategies, which adjust exposure based on the VIX, may intensify volatility. These programs were partially blamed for last summer’s swift selloff and are now being closely monitored for similar signs.

The return of Donald Trump to the policy spotlight is another wildcard. His administration’s push for the expansive “One Big Beautiful Bill Act,” which could significantly increase U.S. national debt, is stirring investor caution. HSBC warns that the market has grown too dismissive of Trump’s potential impact, which could ignite policy-driven market tremors if passed before July 4.

Crude oil prices have seen wild swings this June, fluctuating between $63 and $81 per barrel—making it one of the most volatile periods in over a decade. Disruptions in the Middle East and risks to the Strait of Hormuz continue to loom. Goldman Sachs warns that any major oil shock could strengthen the dollar and unsettle consensus views on its decline. UBS also notes that option pricing points to traders preparing for more frequent one-day volatility spikes in equities—potentially disrupting the usual quiet summer trading period.

Source: Reuters