The new volatility cycle: Why 2025’s market shocks will redefine trader expectations in 2026
Perhaps no one would call 2025 uneventful, doubly so if they are an investor. Tariffs and reciprocal action, active conflicts, and geopolitical tensions. Shadow fleets and a reorganisation of economic and strategic ties. A simple Google search for “What affected markets in 2025” returns what reads like a list of why volatility happens.
Let’s see what contributed to this volatility, how the coming year may shape up, and how all of these factors have led to a complete redefinition of traders’ and investors’ expectations.
What defined the 2025 volatility cycle
Tariffs. That’s it, the one main reason that fuelled the 2025 volatility cycle.
There was a replay of the US’s 2016 cycle of tariffs and the reciprocal answers, but at a much more rapid and aggressive pace and more significant in magnitude. Additionally, destabilising rhetoric from all sides further startled already jumpy markets.
2025 saw the excitement and investment in AI ramp up, with Nvidia leading the charge towards the hope of Artificial General Intelligence (i.e. human-like intelligence). As the year came to an end, the shiny promise of AI tarnished, and we saw market players wondering whether it could even be monetised. The most apprehensive market watchers went as far as to call AI a bubble.
Two active conflicts, one of which spilt out into the surrounding areas, caused oil and equity markets to react. Luckily, markets realised that the conflict would have a limited economic effect. The U.S. also joined the conflict, another volatility trigger, but once markets realised it was an isolated event and contained between the U.S. and Iran, markets quickly stabilised.
Unlike geopolitical instability, which seemed to accelerate, global inflation started to slow from the beginning of 2025. This is after a period of increasing rates since 2022. As expected, banks started to lower rates in response. The first central bank to begin lowering rates, as early as December of 2024, was the US FED, cutting 0.25%.
The ECB and the Bank of Canada followed in January, each lowering their rate by a substantial 25 bps. The only major Central Bank that was an outlier was the BoJ, which actually hiked its rate to its highest since 1995. This is probably the most unexpected rate decision since Japan’s economy seems to be under pressure.
Exness’ Quoc Dat Tong says,
“It seems as though central banks across the world are trying to gauge the current economic conditions, market sentiment, and potential volatility that their decisions may cause.
“At this point, though, they seem determined to hike rates again, so traders should keep in mind the correlation among equities, currencies, commodities, and interest rates. Don’t ignore the internal correlations between asset classes as well.”
Still, certain analysts are pointing towards a pivot. Although the plat du jour was monetary easing, the spectre of inflation still looms, and, with it, the potential for rate hikes. A powerful driving force behind this potential hike is the pressure that the current US administration is putting on the FED to slash rates.
Further increasing the potential for a pivot are the administration’s various efforts to undermine Federal Reserve Chair Jerome Powell. Compromising the Federal Reserve’s independence would limit its ability to address inflation effectively.
If one of the biggest economies fails to control inflation, the runoff can cause macroeconomic, financial, and, of course, monetary instability. It’s highly likely that this may be a persisting volatility trigger even in 2026.
Cryptocurrency’s volatility in 2025
The market’s biggest cryptocurrency, Bitcoin, which is usually also a predictor of the market at large, saw close to $300 billion worth of dormant Bitcoin re-enter circulation. So the hodl-ers seem to be liquidating their positions. For most of the year, this type of sell-off was offset by demand for Bitcoin in exchange-traded funds. But demand has cooled off, and the flows from ETFs are negative.
Another factor is that cryptocurrency derivatives, including BTC derivatives, have slowed significantly. Despite cryptocurrency volatility, the digital currencies preserved their low correlation to other asset classes. Perhaps this is the reason why, at times, we’ve seen cryptocurrencies be used as safe havens.
The oil and gas market in 2025
As one of the most infamously volatile assets, oil did not disappoint. It can’t take all the credit, though, as there was a bit of an OPEC+ vs. non-OPEC battle for the price of black gold. The de facto leader of the non-OPEC countries, the USA, significantly ramped up their production, resulting in a supply glut.
This pushed the price down to US$55 to US$60, even though both WTI and Brent started the year at US$70 per barrel. That marks a pretty significant 20% drop.
Natural gas also experienced a significant swing in its price, but for completely different reasons than crude. It started in 2025 at US$3.64, dropped to US$2.74 in August. As the year came to an end, it peaked at US$5.31 and fell to US$3.94.
Will 2026 be different?
All the events that caused volatility at the end of 2025 are likely to persist into at least the beginning of 2026. There’s good news and bad news. JPMorgan analysts expect double-digit gains for global equities in both developed and emerging markets. They also expect inflation to persist but are bullish on the euro and bearish on the dollar.
Continued global economic growth is also highly likely, with AI, if the bubble doesn’t burst, carrying the bulk of it. Global inflation is likely to remain solidly at 3%, with the trade war pushing prices of global goods up, which will likely remain at least until the first half of 2026.
Oil demand will likely increase, but supply (especially US production) will as well. The same JP Morgan forecast says that its supply will likely outpace demand by threefold.
How trader expectations have changed due to volatility
How has this almost year-long volatility redefined traders’ expectations?
First of all, traders are completely spoiled for choice; there are all kinds of brokers, trading portals, and platforms. What traders are really looking for, though, are the right conditions. During volatility, opening a position with precision is critical; milliseconds count. Price stability is another powerful tool; when spreads are unstable, trading is difficult, and success is like trying to hit a moving target.
Being able to place a trade when an opportunity presents itself, or acting immediately to minimise risk, is like a super ability when someone’s in volatile markets. Finally, low slippage helps traders avoid profit loss due to a trade not executing at the intended price.
That seems like a reasonable list of demands. A list that few brokers can offer, though.
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