Liberation Day aftermath: S&P 500 down 12% in 3 sessions

The S&P 500 closed at 496.08 on April 7 2025, completing a 12% decline from its April 2 Liberation Day level in three trading sessions. The VIX reached 60 intraday on April 7, its fourth-highest level on record, surpassing the August 2024 yen carry spike peak. Correlations between asset classes broke down: gold sold off alongside equities as systematic strategies liquidated positions to meet margin calls.

The decline was driven by forced selling rather than fundamental reassessment. CTAs, risk parity funds, and volatility-targeted strategies reduced equity exposure mechanically as vol spiked. Corporate buyback programs entered blackout windows ahead of Q1 earnings. Retail investors initially bought the dip but capitulated as volatility persisted. The session saw Treasury bill yields fall sharply as cash flows into money market funds spiked.

The April 9 session would see the S&P 500 rally 9.5% on announcement of a 90-day tariff pause for all countries except China, marking the largest single-session rally since 2008. But the Liberation Day shock had introduced persistent uncertainty into multi-year corporate planning horizons, embedding a permanent risk premium into US equity valuations that persisted into 2026.