After the rollercoaster ride of early April, the US stock market seems to have come to a standstill. The S&P 500 is neither alive nor dead — it's starting to resemble Schrodinger's cat. All it would take is one shock event for the broad equity index to tumble back into bear-market territory. And a social media post by Donald Trump could be that event. This is a man whose words move trillions. Corporate America has never seen anything like it. Should we really be surprised by a spike in volatility?

S&P 500 volatility trends

There is a reason the S&P 500 has plunged and is now stuck, awaiting further guidance from the man in the White House. The Republican firebrand has impressed investors with bold talk of shifting from short-term pain to long-term prosperity for the US. However, no one knows how far Trump is willing to go. Will this pain spiral into a recession? Or could negotiations between Washington and foreign capitals ultimately lead to a rollback of tariffs?

Some Wall Street firms are starting to issue binary forecasts for the S&P 500. Crossmark Global Investments, for instance, says the index could plunge to 4,000 in the event of a recession, or soar to 5,800 if the US manages to avoid one.

The trouble is that if Trump follows through with his pledge to eliminate the US current account deficit, American equities could take a serious hit. Historically, US trade imbalances have tended to shrink during economic downturns.

US foreign trade dynamics as percentage of GDP

This stems from the fundamental link between the current and capital accounts in the balance of payments. When the current account is negative, capital flows into the US to offset the imbalance. However, as the deficit narrows, capital flows out, weakening the USD index and making investments in American equities less attractive. After all, what is the point in buying US stocks if the dollar is about to lose 30%?

The White House's efforts to rebalance trade through the largest tariffs seen since the early 20th century — along with demands that other nations boost US imports — will inevitably reduce foreign income, making those countries less able to buy US-issued stocks and bonds. This is a structural shift with the potential to trigger a serious pullback in the S&P 500.

Instead of pursuing a backup strategy, Donald Trump is making matters worse by going after Jerome Powell. If the Fed's independence is truly undermined, confidence in the US dollar could sink to historic lows, accelerating capital flight from the country.

Technically, a 1-2-3 reversal pattern may be taking shape on the daily chart of the S&P 500 — but for that to happen, bulls need to reclaim the inside bar. A break above the 5,325 high would trigger a buy signal. Conversely, a clean break below the 5,250 low would reopen the path for short positions.