Wall Street has been on one of its wildest rides lately, and it sometimes feels like everyone is scrambling to figure out ‘why’.

Is it the looming trade tariffs between the US and China, delayed economic data due to the government shutdown, or simply corporate earnings failing to live up to lofty expectations?

The truth may be a bit of all three, wrapped together with a heavy dose of algorithmic trading and investor psychology.

Banks are posting strong numbers, yet worries about regional-bank loan losses are stealing the limelight.

Rare earth supply chains and geopolitical standoffs are looming large, especially for tech and clean-energy companies.

Across the board, both institutional and retail investors are shifting toward defense: quality stocks, gold, and bonds.

And on the horizon, meetings between Xi Jinping and Donald Trump are opening faint windows of optimism in an otherwise jittery market landscape.

As the Fed signals possible rate cuts but tariff threats keep pinging the radar, the stage is set for volatility, and perhaps for opportunities.

Against a backdrop of sharp swings and mixed signals, Invezz spoke exclusively with Joshua Mahony, Chief Analyst at Scope Markets, to break down the chaos and discuss the road ahead for Wall Street.

Excerpts:

Invezz: What do you think is really behind the recent wild swings on Wall Street? Are traders reacting more to the trade tariffs, economic numbers, or how companies are reporting earnings?

The weakness we are currently seeing within equity markets highlights the sensitivity around any perceived negative news or signs of economic weakness.

Bad loan write-downs from regional banks in the US have largely overshadowed the blockbuster earnings data out of the Wall Street banks, highlighting the long-standing trend of underperformance being punished to a greater degree than any outperformance is rewarded.

Surprisingly, the US-China spat appears to have made less of an impact on market sentiment than many would have predicted, perhaps highlighting the expectation that Trump’s 100% tariff threat is more bluster than reality.

With Xi Jinping and Donald Trump set to meet in the coming weeks, the existence of that meeting does provide optimism around a potential resolution to the current trade spat.

Invezz: We have seen some pretty sharp moves in the S&P 500 lately. How much do you think algorithmic trading and investor psychology are driving these ups and downs?

Speculation over the perceived overvaluation of US markets has increased expected volatility, with traders growing increasingly concerned over the potential for a market pullback.

Today, algorithms drive a significant portion of market volatility, with high-frequency and systematic strategies reacting instantly to headlines, data releases, and technical levels.

This has the potential to exaggerate intraday swings, explaining why we can sometimes see markets chop and change over the course of the day.

From an investor psychology perspective, the fear of missing out (FOMO) for those trying to capitalise on each record high has been countered by pessimists warning of a market peak.

Earnings season provides an opportunity to see both algo-based volatility and market speculation as one stock’s numbers are projected as a potential sign of the direction for the sector or even the economy as a whole.

Invezz: Which sectors or companies do you see as the most vulnerable in this US-China trade battle, especially now with China’s rare earth export restrictions?

Rare earths are critical in the modern economy, and China will be well aware of that.

While they do hold a trade surplus, which the US sees as a point of leverage, Xi Jinping clearly understands that rare earth materials provide their key advantage.

China controls about 70% of global mining and 90% of global processing capacity, so any export restrictions could immediately put pressure on supply chains.

The most vulnerable sectors are technology and clean energy. Semiconductors, smartphones, electric vehicles, and renewable energy systems all depend heavily on rare earth elements.

For example, companies like Apple, Tesla, and major chipmakers are exposed because even small disruptions in the supply of rare earth magnets or battery materials can delay production and raise costs.

It also plays a key role in the defence sector.  Fighter jets, missile systems, and advanced radar all rely on rare earths. That makes it not just a commercial issue but a strategic one.

Understandably, the fact that the US is reliant on the Chinese to build its military and defence capability is a major flaw in its planning, with a self-sufficient supply clearly a better strategy.

Meanwhile, the fact that the US and China are potential adversaries (especially if China moves on Taiwan) highlights the reasoning behind a more restrictive approach from the Chinese.

Efforts from the West to diversify supply chains will take many years, and thus the US plan to start building a strategic stockpile highlights the need to take advantage of any periods of goodwill while they exist.

Invezz: From what you are seeing, how are both big institutional investors and everyday traders adjusting their portfolios to deal with all this uncertainty? Are they moving into safer bets?

Large institutional investors are clearly tilting toward defensive positioning, increasing allocations to US Treasuries, high-grade corporate bonds, and physical hedges such as gold.

Meanwhile, the outperformance of defensive sectors such as utilities does signal the push for dividend returns rather than solely weighting portfolios towards the big tech names.

There’s also a focus on “quality” factors: large caps with strong balance sheets, consistent cash flows, and global diversification.

Daily traders are undoubtedly investing in gold, but it’s unclear if this is a safe haven or merely a strategy to profit from a trending non-fiat asset.

Some will seek relative safety by looking into ETF products in a bid to diversify their holdings, taking profits on some of the big tech AI plays.  

Invezz: What’s your take on President Trump’s claim that Modi told him India will stop buying Russian oil? How might this shift global trade flows?

The apparent agreement from India comes as somewhat of a surprise, with the Asian nation previously showing little appetite for a trade deal if it means the end of their cheap energy imports.

It is notable that the spread between Russian Urals oil and Brent has narrowed over time, so those imports aren’t quite as attractive as they previously might have been.

Notably, the Indian response to Trump’s press conference seemed less certain on their pledge to entirely end purchases from Russia, with mentions of diversifying their supply chains signalling that perhaps there had simply been an agreement to take more US crude.

Notably, if we were to see purchases halt immediately, it could raise prices for WTI as Indian buyers compete with the global market for their oil.

However, the fact that we have already seen a positive step in terms of conversations between Trump and Putin does highlight that these efforts to squeeze demand for Russian exports could ultimately end the war, allowing greater oil supplies and lower prices.

Invezz: Looking ahead, how do you think Wall Street will hold up for the rest of the year with the trade tensions and the Fed’s policies in play?

The prospect of rate cuts in the months ahead has provided a boost for markets, although to a large extent they are currently priced in.

Markets are increasingly confident that the Fed will ease at a faster pace than the single 2026 cut laid out in the latest dot plot.

However, questions remain, given the looming 100% tariffs on China that could dramatically shift the inflation outlook if implemented.

The instability shown in the regional banks could put pressure on the Fed to loosen credit conditions, but the risk of an economic shock would likely overshadow the benefit of lower rates.

Nonetheless, the optimists will note that we already saw major cracks form in the regional banks back in 2023, with the government and JPMorgan ultimately bailing out the sector.

Meanwhile, the threat of major tariffs on Chinese imports will likely see Trump TACO out once again, given the economic implications this would have.

As such, while we are likely to see periods of volatility, those pullbacks will likely represent buying opportunities until the moment that the AI trade finally starts to implode.

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