Stock markets likely to be volatile in 2025 due to Trump tariffs, geopolitics

Investors anticipating another calm year in 2025 should be on guard for more shocks like the one seen in August as uncertainty around US President-elect Donald Trump's tax and tariff policies threatens to roil markets.

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Strategists at Bank of America (BofA), JPMorgan Chase & Co and Spain's Banco Bilbao Vizcaya Argentaria (BBVA) expect the continued flow of option selling to generally keep a lid on volatility, with JPMorgan seeing the Volatility Index (VIX) of the CBOE (Chicago Board Options Exchange) averaging around 16, compared with around 15.5 across 2024.

But BBVA points to a slew of factors—including rising uncertainty around US tariff policies, geopolitical tensions, overstretched concentration and valuation, signs of stress in funding markets and a weakening job market—that could spark more swings.

"Continued growth paired with the rising popularity of volatility selling strategies should be supportive of a structurally low-volatility environment in both Europe and the US," BBVA strategist Michalis Onisiforou wrote in a note to clients. However, "several factors point to elevated, broader volatility levels and more frequent bouts of it in 2025".

BofA sees the market as characterized by long periods of calm followed by "fat tails", or large, sudden extreme swings. It expects a fivefold increase in the frequency of fragility shocks in the S&P 500 index compared with the previous 80 years, and says another index-wide major shock event may be overdue.