(The opinions expressed here are those of the author, a

columnist for Reuters)

By Jamie McGeever

ORLANDO, Florida, March 10 (Reuters) - Financial market

volatility has bubbled up to its highest level this year thanks

to the chaotic implementation of U.S. President Donald Trump's

protectionist trade agenda. While volatility hasn't boiled over

yet, investors would do well to guard against complacency,

because tariff fatigue may push it over the edge.

Implied volatility in the S&P 500 as measured by the VIX

index - Wall Street's so-called fear index - is now the highest

since the Fed cut interest rates in December, a decision markets

interpreted as a mistake at the time. The VIX has almost doubled

in the last month, and on Monday the three-month VIX spiked to

its highest since August.

The 'MOVE' index of implied volatility in the U.S. Treasury

market is also the highest in four months, which is especially

notable as it is accompanying a rally in Treasuries prices

rather than a bond market selloff and rise in yields.

Volatility is still well below levels associated with past

market crises, or even recent episodes like the 2023 U.S.

regional banking panic or Japan's yen carry trade shock last

August. Its recent rise certainly hasn't matched the ongoing

surge in policy uncertainty that, by some measures, has never

been higher.

Analysts at JP Morgan put this suppression of volatility

down to retail investors' willingness to 'buy the dip', which

has provided a "persistent backstop" to equities, the rise of

'passive' equity investing over 'active' management, and the

strength of investor and corporate balance sheets.

They note that since the S&P 500's peak on Feb. 19,

U.S. equity ETFs have only recorded one day of net outflows.

Cumulative inflows over the period have exceeded $30 billion,

which has helped limit the broader market decline.

But based on White House statements over the past few days

and intensifying market ructions, it's possible we're soon going

to see a true spike in volatility as investors start to question

whether 'buying the dip' is such a good idea.

'DETOX' PERIOD

Warnings about further market turbulence are now coming from

on high. U.S. Treasury Secretary Scott Bessent said on Friday

that the economy is entering a "detox" period, and Trump

declined to rule out a recession in an interview with Fox News

broadcast on Sunday.

Trump, who tweeted more than 150 times about the rising

stock market during his first term, also said on Friday that

he's "not even looking at the market" and that there will likely

be some "disruption" as his tariffs are implemented.

He's not wrong there.

The so-called "Trump bump" is long gone. The S&P 500 is

lower than it was before his November 5 election win and is now

down nearly 10% from last month's high and close to official

correction territory. The Nasdaq is already in a correction, and

has lost 14% in just three weeks after slumping another 4% on

Monday.

And even if recession risks flagged by some GDP models prove

to be unfounded, the economic outlook is still darkening

rapidly. Economists at Morgan Stanley just cut their 2025 GDP

growth forecast to 1.5% from 1.9%, and economists at Goldman

Sachs trimmed theirs to 1.4% from 2.4%.

Economic growth at these below-trend rates is unlikely to

sustain current equity valuations, hence the repricing currently

underway, and the growing tariff fatigue should only exacerbate

this downturn.

Every tariff announcement from Trump moving forward -

whether it's an unveiling, pause or exemption - is likely to be

met with a selloff on Wall Street. If he doesn't pull back,

stocks fall on the feared economic impact; if he does pull back,

stocks fall on the resulting chaos, confusion and uncertainty.

"Trump's leverage credibility with tariffs is quickly

eroding," says Alfonso Peccatiello, chief investment officer at

Palinuro Capital.

The volatility dam has, by and large, held. But pressures

are building. Investors may need to seek cover.

(The opinions expressed here are those of the author, a

columnist for Reuters.)