Investors Pull Back From Risk as Policy Uncertainty and Volatility Rise

US markets are entering the new week in a clear risk-off mode. Investor behaviour is increasingly shaped by policy uncertainty, elevated volatility, and a broad reassessment of risk exposure across asset classes.

The main trigger behind the latest shift in sentiment was the nomination of Kevin Warsh as a potential candidate for the next Federal Reserve chair. Markets interpreted the move as a signal of a more disciplined, less aggressive path toward monetary easing — and adjusted accordingly.

Risk Assets Under Pressure

The reassessment sparked a wave of selling across a wide range of assets. Cryptocurrencies and precious metals, which had rallied sharply in recent weeks, continue to correct as investors lock in profits and reduce exposure.

At the same time, a partial US government shutdown began over the weekend following budget disagreements in Congress. Market reaction has remained muted so far. According to Polymarket, the probability that the shutdown lasts longer than six days is estimated at just 20%, limiting expectations of longer-term market impact.

Macro Signals Add to Caution

Attention is now turning to business activity indicators from ISM and S&P Global. Consensus expectations point to readings below the 50-point threshold, signalling contraction.

A surprise move back above 50 would confirm economic resilience — but could also be interpreted by markets as justification for the Federal Reserve to keep interest rates elevated for longer. This asymmetry is reinforcing investor caution.

Futures Point Lower

US equity futures are trading in negative territory. The balance of risks remains skewed to the downside, while volatility is elevated.

The S&P 500 is likely to open with a downside gap, with traders focusing on the 6,830–6,940 range. Nasdaq futures are also under pressure, tracking the broader correction across risk assets.

Previous Session Recap

In the previous trading session, both the S&P 500 and Nasdaq ended lower.

The S&P 500 briefly tested the 6,900 level intraday before recovering modestly into the close at 6,939. The Nasdaq finished below 25,800, moving closer to a test of its 50-day moving average.

Today’s Technical Setup

S&P 500 futures are hovering near the lower boundary of a medium-term ascending channel, just below the 6,900 level. Key support is located near 6,850.

Nasdaq futures are consolidating within a short-term downward-sloping channel around 25,400. The next major support zone sits near 25,000.

From a technical perspective, price action remains fragile. A clean break below these levels could accelerate downside momentum.

Sector Performance

Cyclical sectors showed broadly negative performance. The weakest areas were materials (XLB) and industrials (XLI).

Growth-oriented sectors also declined, with semiconductors (SOXX), solar (TAN), and IPO-focused ETFs (IPO) leading losses. Communications (XLC) ended the session marginally higher.

Defensive sectors outperformed on a relative basis. Consumer staples (XLP) led gains, while utilities (XLU) finished lower.

Intermarket View

Oil is testing the lower boundary of its local uptrend channel, holding near $61.5.

US Treasury yields remain within a rising channel, trading close to the trendline near 4.23%.

VIX is probing its medium-term downtrend line from April, stabilising around 19.

Gold, after testing the lower boundary of its medium-term uptrend, is consolidating near 4,650.

Market Takeaway

Once again, investors are recalibrating expectations. Policy uncertainty, sector rotation, and fading momentum in previously crowded trades are driving a cautious tone across markets.

For now, risk appetite remains fragile — and price action suggests that volatility is unlikely to fade quickly.

Technical analysis by: Lucas Grant, Senior Technical Analyst at Finmire.