US tariff volatility: what’s your strategy?

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.

The US market has sneezed and the rest of the world has caught its cold. President Trump resolutely sticking to tariff plans, China’s initial riposte of a 34% levy on American imports and Goldman Sachs upping its expectations of a US recession from 35% to 45% likelihood are taking their toll on global markets.

The S&P 500 is continuing last week’s rout, with the index now down -13.7% in 2025. There were no risers on the FTSE 100 at the open this week, Japan suspended trading of its major stock futures after the Nikkei 225 fell 7.4%, and China’s sovereign wealth fund stepped in to buy domestic index ETFs as it tried to stem market losses.

Discrete calendar year performance

As at 7 April 2025. Source: FE Fundinfo. Total return basis, in local currency. Past performance is not a reliable guide to future results.

Liberation Day has ignited talk of trade wars and economic slowdown and we should be prepared for an uncertain period as markets struggle for direction. That much is clear in the VIX index, also known as Wall Street’s fear gauge. The index gives an idea of investors’ expectations of volatility over the coming month and, this morning, the measure hit 60. That’s a good bit higher than the 30 reading associated with extreme volatility and is approaching levels last seen at the onset of Covid-19.

The main focus for investors for the rest of the week is likely to be how the world lines up to deal with the US. Treasury Secretary Scott Bessent has suggested 50 nations have already signalled their willingness to negotiate but seeing who plays hardball and who rolls over will not only provide certainty to the market but will also help companies price the new world into their forecasts.

At the moment, it looks like China is in the former camp - given the magnitude of trade between both countries and the rest of the world, any signs of tensions escalating even further could add fuel to the fire.

No doubt we’ll see more market swings before clarity starts to seep through. In the meantime, try not to be swayed by short-termism and stick to solid investing principles - it’s times like these when they’re most valuable.

1. Don’t act rashly.

It’s tempting to let adrenaline or fear take over when markets get choppy but nothing beats a cool head. Meaningful information is still streaming in and the market is constantly digesting it so don’t front-run facts with guesswork.

2. Remember your own investment personality.

Keep in mind your financial goals, your tolerance for risk and how volatile a journey you are prepared to put up with. The trade-off between these three factors should influence the assets you hold rather than any reactive buying spree.

3. Reassess your asset mix

If 2025 has shown us anything so far, it’s the importance of diversification. While selloffs have been indiscriminate over the past few days, some overly concentrated portfolios have been suffering since the beginning of the year, with this week piling on even more pain. Consider how balanced your asset mix is before leaping on dips in what might be an increasingly narrow set of companies. If inflation reignites in the US, there is likely to be a rush for high-quality companies with steady revenues, strong balance sheets and limited exposure to earnings streams vulnerable to tariff disruption.

4. Don’t rush to trade

Companies all over the world are working out what tariffs mean for their supply chains, margins and customer appetites. If they don’t have a handle on it yet, you probably don’t either. If you are planning to get into the market, be aware uncertainty and tit-for-tat tariff headlines might mean it gets worse before it gets better. In that case, think about staircasing into the market, adding amounts at regular intervals rather than all at once - at which point you’d be vulnerable to another drop.

5. Consider if hedging strategies are for you

Options trading strategies might be able to help protect against further market drops and may even allow you to profit from continued bouts of volatility. For example, buying put options on indices or individual stocks you hold gives you the right to sell them at a fixed price in the future. If the market continues to fall, your puts increase in value, offsetting losses in your holdings.

Read more: Introduction to index options

Just keep in mind the role implied volatility (IV) plays here. When distress hits markets, demand for options (particularly puts) rises. That can mean IV shoots up, increasing the price of your put even if the price of the underlying doesn’t drop further.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.

Options are complex products, involve significant risk and are not suitable for all investors. You could lose more than your initial invested capital. You should only invest in financial products that match your knowledge and experience. Please review Characteristics and Risks of Standardized Options prior to engaging in options trading.