Trump's tariffs shake U.S. stocks, experts predict: three sectors are expected to rebound first
The market turmoil caused by Trump's tariffs is expected to lead to a rebound in energy, financial, and technology stocks after volatility decreases. Strategists at 22V Research pointed out that the tariffs have the greatest impact on the volatility of the energy sector, with a correlation of up to 90% over the past month. As tariff risks diminish, these sectors are expected to perform well in the short term, with signs already indicating that buyers are actively purchasing related stocks
According to the Zhitong Finance APP, strategists at research firm 22V Research have indicated that among all sectors of the S&P 500 affected by U.S. President Donald Trump's trade war, three sectors are expected to see the largest rebound once the turmoil caused by tariffs eases: energy, financials, and technology stocks.
According to 22V Research's calculations, while these sectors have declined, the impact of tariff news on their volatility has also increased in April. For the energy sector, tariffs can explain over 90% of the volatility in the past month. This proportion is the highest among the 11 sectors of the S&P 500 and is higher than the approximately 50% when Trump announced the comprehensive tariff plan on April 2.
The energy sector has fallen by 16% during this period. Due to this correlation, 22V Research hypothesizes that the opposite situation will also hold: as the impact of tariffs on volatility diminishes, energy stocks will rebound.
Correlation between S&P 500 sector volatility and tariffs
Kevin Brocks, a director at 22V Research, stated, "Everything is now closely related to tariff risks, making long-term positioning exceptionally difficult. We are focusing on short-term opportunities, which currently have a more favorable risk profile."
In his view, "If tariff volatility calms down, we can reasonably expect that energy, technology, and financial stocks will perform well in the coming weeks."
There are already signs that buyers are aggressively purchasing stocks in these sectors. Data from Bank of America shows that energy ETFs attracted $129 million in funds last week, ranking among the top in sector ETFs. Data from Goldman Sachs' institutional brokerage division indicates that the number of U.S. financial stocks purchased by hedge funds last week reached a four-month high.
Dennis Debusschere, president of 22V Research, has a track record of accurate predictions. In March 2020, he stated that if fiscal stimulus measures worked, the U.S. stock market could quickly recover, and that indeed happened.
In early July last year, he anticipated that investors would shift from safe large-cap tech stocks to higher-risk sectors. That month, the Nasdaq 100 index lagged the Russell 2000 index, which tracks small-cap stocks, by 12 percentage points.
Due to the erratic nature of Trump's tariff policy, the U.S. stock market experienced significant volatility in April. Although the market has calmed this week, the impacts related to tariffs are not over. Despite the Chicago Board Options Exchange Volatility Index retreating from a five-year high, market volatility remains above the 12-month average.
As tariff concerns ease, the energy sector will be a major beneficiary, as an improving global economic outlook may boost oil demand. Similarly, stronger consumer spending could promote credit card usage and loan activity, thereby benefiting financial companies. Meanwhile, once tariff policies become clearer, demand for electronic products will favor the technology sector Cole Smead, CEO of Smead Capital Management, stated that the market has "overreacted to concerns about an economic slowdown, so any good news regarding tariffs could drive these sectors up."