The earnings season for US stocks under the shadow of tariffs: The options market bets on soaring individual stock volatility, with healthcare stocks likely to become the "eye of the storm."

According to Zhitong Finance APP, the impact of tariffs is set to become a focal point in the upcoming second earnings report season, prompting investors to prepare for greater volatility. The options market indicates that the volatility of earnings report days for S&P 500 constituent companies will be greater compared to recent quarters. Among them, the healthcare sector has the highest potential for significant fluctuations.

As trade tensions escalate, U.S. President Trump has threatened to raise tariffs on numerous trading partners—including imposing a 50% tariff on Brazil and a 30% tariff on the European Union—and has stated that he will not extend the recent August 1 deadline. Given the dramatic events surrounding tariffs over the past few months, this new uncertainty may continue to hinder some companies' ability to provide forward guidance.

These options suggest that the volatility on earnings report days for S&P 500 constituent companies will increase compared to recent quarters, although not to the extent seen in April when trade disputes caused market turmoil.

During the first quarter earnings season, mentions of tariffs were frequent, but many companies did not quantify the extent of the impact or adjust their expectations. Investors are now looking for clearer information—however, according to Goldman Sachs strategists, 73% of S&P 500 constituent companies will report earnings before the new deadline for an agreement with the U.S., so the situation may still remain unclear.

Kieran Diamond, a stock derivatives strategist at UBS Group, stated, "The options market anticipates that the stock price reactions following the second quarter earnings reports will be more pronounced, especially for companies in the consumer and healthcare sectors. This aligns with the trend observed in recent years, where stock price volatility on earnings report days has been increasing in both the U.S. and Europe."

The healthcare sector stands out in terms of volatility, with expected fluctuations significantly higher than in previous earnings seasons. The sector is facing the threat of extremely high tariffs, and additionally, the tax reform and spending bill recently passed by the U.S. Congress has cut funding for the Medicaid program.

Analysts have significantly lowered their target expectations for the European region as the earnings season approaches, while expectations for the U.S. are also relatively conservative. A report from BNP Paribas derivatives strategists last week noted that positions in Europe are relatively light, and Germany's fiscal statement poses an upside risk to optimistic economic growth expectations In the United States, strategists at Deutsche Bank pointed out that the current market situation is slightly below neutral levels, which is conducive to a market rebound. They emphasized a long-standing phenomenon that during earnings season, stocks typically rise "about three-quarters of the time," with an "average increase of 2%."

This week, earnings reports released in the U.S. are dominated by banks and other financial institutions. Among these large companies set to announce their earnings, many are showing fluctuations that exceed the average volatility observed in the two years following their earnings announcements.

As the overall market trend is generally upward, and the recent volatility of indices (including implied volatility and actual volatility) continues to decline, the volatility of individual stocks remains stable. At this time, traders are anticipating greater individual stock volatility during the earnings season. Last week, the ratio of the Chicago Board Options Exchange's S&P 500 component volatility index to the VIX index reached its highest level since February.

Goldman Sachs expects that in this quarter, volatility on earnings days will increase, as most key market discussions revolve around specific themes—tariffs, artificial intelligence, interest rates, government policies, etc.—and are likely to produce winners and losers rather than a broad rise or fall. The volatility on the latest earnings days may be 3.5 times higher than that on non-earnings days, compared to a ratio of 2.5 times in the previous period.

John Marshall, head of derivatives research at Goldman Sachs, wrote in a report: "Before earnings announcements, we still find options buying strategies quite attractive; during the earnings announcements, we believe options selling strategies are more favorable."