Why Market Volatility Isn’t Going Anywhere Anytime Soon
Market volatility usually has a reason, and right now, a big part of the story is policy risk. Mohit Mittal from PIMCO and Kevin Mahn from Hennion & Walsh point to tariffs and shifting government strategies as major contributors. When deadlines loom, like Trump’s August 1 tariff date, markets start bracing for sudden swings.
Stocks, bonds, and currencies all become more sensitive to headlines, and investors face a rougher ride. Traders must prepare for outcomes ranging from no tariffs to broad-based ones, each with completely different market impacts. That guessing game keeps volatility alive.
Outside of trade fights, there’s constant attention on inflation data, jobs reports, and the Federal Reserve’s rate decisions. Investors have learned to expect sudden moves after each Fed meeting or major data release. Instead of a clear trend higher or lower, we often get a back-and-forth pattern that stretches out for weeks.
The Wall of Cash That Might Not Budge
Trillions of dollars are currently parked in money market funds, which have been paying an average yield of about 4.3%—a strong return for something viewed as nearly “risk-free.” Some believe that when the Federal Reserve begins cutting rates, part of the $7.6 trillion in these funds will flow into stocks and bonds. But history shows those shifts are usually small. Money fund balances only fall sharply when rates plunge to near zero during major crises. Even if yields decline to around 3%, money funds will still offer far better returns than bank deposits, which typically pay just 0.5%.
That means most of this money will stay where it is. Experts estimate that maybe 10% could shift into riskier assets, but since about 60% of money fund balances belong to corporations and institutions, the majority won’t move just because interest rates dip slightly. This undercuts the popular “wall of cash” theory that predicts a massive money flow into markets. Instead, the continued growth of money market funds shows that volatility is also about how investors react to changing incentives.
Volatility Never Disappears
Volatility measures how much prices move relative to their average. Traders often track it using standard deviation or the VIX, known as the “fear index.” A rising VIX signals that investors expect larger price swings ahead. This matters for asset pricing, especially in the options market. When volatility is higher, option premiums go up because there’s a greater chance that the contracts will end “in the money.”
For long-term investors, volatility can feel unsettling. For traders, though, it often creates opportunities. Volatility also tends to return to its long-term average, which means quiet periods are usually followed by more active ones. This cycle makes volatility a permanent part of the market, not an issue that ever disappears.
Between trade risks, the Fed’s upcoming rate cuts, and the massive pile of cash that likely won’t move much, markets are set up for more ups and downs. Investors hoping for a calm period will likely be let down. Volatility is baked into how pricing and risk-taking work across the financial system. That’s why Mittal suggests using dislocations to buy high-quality bonds, while some equity investors view sudden drops as a chance to buy at better prices. The smarter approach is not to wait for volatility to vanish but to plan for it and use it when it works in your favor.