Over the past month, the S&P 500 chart has begun to resemble a roller coaster, with more dips than rises, resulting in a decline of about 3.8%. As for small caps, the Russell 2000 index, which helps gauge overall risk aversion in the market, fell 6.8%. Finally, the Nasdaq index posted a 4.7% decline.

In contrast, the DXY rose 2.6%, and U.S. 10-year Treasury yields surged an impressive 9.8%. Yields on the 20- and 30-year Treasuries jumped 8.5% and 8.4%, respectively. Overall, investors seem to have become more cautious and have been flocking to safer assets in recent weeks.

What has caused this change in mood?

The volatility spike occurred on December 18, the day of the Federal Reserve meeting. In addition to the expected 25 basis point rate cut, the Fed “surprised” markets by revising the rate cuts scheduled for 2025, reducing it from four to two, citing slower progress in disinflation.

Then, the negative factors kept coming: Trump threatening more tariffs against the rest of the world, the Biden administration imposing tougher sanctions on the Russian energy sector, and stronger-than-expected US economic and labor market data.

All of this raised concerns that prices in the U.S. could start rising again, which could mean the Fed won’t cut rates this year and might even have to raise them to prevent inflation from accelerating. This fueled more market anxiety and a cautious retreat from riskier assets.

But could these be just temporary moves?

Despite a choppy start to the year, analysts at major banks continue to forecast that the S&P 500 will break above 6,600 points by the end of December. However, relying solely on this as a guaranteed sign that the bull market will continue does not seem promising.

Much will depend on how world events unfold. For example, if new sanctions on Russia result in a loss of some 800,000 barrels of oil per day, oil prices will likely rise initially, which could drive up the cost of goods and services, as oil is a key commodity in almost every aspect of our lives.

Another factor to consider is geopolitical risks. Although Trump promised to resolve all crises almost immediately after his inauguration, the reality may be much darker: existing conflicts could be exacerbated, and new ones could emerge, such as between Iran and Israel or Armenia and Azerbaijan.