As macro events continue to drive volumes and market volatility, a major focus for equities trading desks will be the upcoming tariff deadline on August 1. While markets have been trading at all-time highs, Stuart Lawrence, head of equities at UBS Asset Management, warns of a potential market pullback in September as tariffs take effect and looks at whether the market’s “irrational optimism” could collide with the hard economic data. Looking back, Lawrence also unpacks how trade concentration patterns in Europe have evolved before and after Trump’s initial tariff announcements in April. Globally, he analyzes activity, volumes, and volatility measures over the last six months.
Interview
Jo Gallagher Macro events continue to be a big driver for activity. How are you seeing equity stats respond to intraday risks and heightened market volatility?
Stuart Lawrence I think it’s safe to say that 2025 has been a year of numerous events which have increased volatility and volumes. Some of them have been expected as scheduled, while others have come as a complete surprise. I think we can look at surprise versus scheduled because it gives us different patterns in how we see volumes react. So for example, scheduled, which would be the Liberation Day announcements with regards to tariffs. Ahead of them, volumes pulled back somewhat. As we waited to see what was going to be said. Post the announcement of these scheduled events, as soon as we have the content, volumes and volatility both increase very quickly and then pulled back once people had adjusted to the new norm. From the surprise side, however, such as the pulling back from the tariffs shortly after announcements, what you see is a sudden, very sharp increase in volumes and volatility, which then pulls back almost equally as quickly and actually to deeper levels. So what we see post a surprise is that volumes actually collapse significantly lower than they do for scheduled events. One thing we are seeing, which is perhaps a bit of a surprise in the Trump era, is that the volatility because of these surprises is no worse than it would be for a non-Trump event, whether it be non-farm payroll data, et cetera. So it’s very much business as usual for a trading desk. One thing that has become a very common story in Europe is the fact that liquidity has shifted to the period where we overlap with the US, and in particular, into the closing auction, where we can see over 30% of an entire day’s volume going through in that five-minute period. What we saw during April and Liberation Day was traders trying to execute more during the continuous phase of the trading day. There was a conviction to what they were doing, there was urgency to what they’re doing, and they needed certainty of execution. They didn’t want to wait to the end of the day. Likewise, we saw auction volumes fall during that period. What we are seeing now, however, is that it has reverted to the previous norm, and we are back to a situation where we were at perhaps the start of the year and through last year from a volume curve perspective. From a volatility perspective, As of last Friday, the VIX was trading around the 16 level. And if you think that the long-term average of the VIX is 19, it’s fair to say that we are in a normal volatility environment. When we combine that with the fact that the volume profiles that we’re seeing in the markets have returned to normal, it’s reasonably fair to say that trading desks can continue to employ the strategies that they had in the past. The one thing that they need to look out for is a surprise event which will require them to adapt very quickly. The best thing to do is ensure that you have lots of limits in place, to have a dynamic trading approach where you can adjust things very quickly based on what is happening. Most importantly, have a clear line of communication with your portfolio managers so you can inform them what is going on and have a two-way dialogue on how best to proceed.
Jo Gallagher Markets are trading at a near all-time high despite so much uncertainty, and summer being historically a slow period. Do you see these volumes and this level of bullishness continuing?
Stuart Lawrence Markets are at all-time highs, but the positioning is not particularly extreme, and I think markets do have room to go higher in the near term. What we saw over the late spring, early summer period was that the retail investors in the US continued to buy, and that caught the institutional investors somewhat off guard, and now they are racing to catch up. As we get to the end of August, beginning of September, and the end of the reporting season, I think we might see the markets pull back somewhat, as investors digest what has occurred in the last three months and start looking at the economic data to see if there’s any effect from the tariffs that will come into play. I personally believe 1st of August will be a hard deadline for tariffs and they will come into play. We will obviously then have to start listening out for trade deals which may limit the damage. One concern I do have is that we’ve reached a period of irrational optimism and complacency, which will drive markets higher in the near term but we will reach a period where that irrational optimism hits the wall of economic data and generally, you will find that economic data will win.
Jo Gallagher Thank you Stuart for your insight, and of course, you for watching. This has been Trader TV, This Week.
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