As both sides in the China-U.S. trade dispute speed toward the edge of the cliff, and new trade tensions appear (and disappear) with rapid frequency, we are seeing markets being driven more by sentiment and less by fundamentals. As active investors, we must ask ourselves, What is the reality? The U.S. economy is slowing, but not stalling. The trillion-dollar question for investors is, Will volatility and enough negative sentiment make worries become reality? Vanguard's Investment Strategy Group team doesn't see the threat of an imminent recession, and with a Federal Reserve that seems willing to keep rates low, we may get a pass. Tight financial conditions are one of the keys that could turn sentiment into reality. But we haven't yet seen a large move in financial conditions or volatility, and lower yields are offsetting the price decline in equities.