Trump tariffs continue to dominate stock market headlines, meaning traders must be ready to shift gears at any moment.
Recent news that the Trump administration would reconsider its 145% tariff on China, along with a climbdown on President Donald Trump's apparent threats to fire Fed Chair Jerome Powell, were greeted by the market with relief this week. The major indexes on Thursday surged for a third straight session.
But the on-and-off nature of Trump tariffs could mean more volatility ahead for the stock market and economy. "I tell this to the audience, but I'm really telling that to myself, if you're going to jump into a dicey market or go in heavy, you have to be ready to jump out just as fast," Ed Carson, news editor at Investor's Business Daily, tells the "Investing with IBD" podcast.
Trump Tariffs: Negotiation Tool Or Revenue Generator?
The shifting headlines around President Trump's tariff policies are the primary reason for the rapid dips and rips in markets as of late. During President Trump's April 2 tariff announcement, he made clear the tariffs had three goals. Tariffs would help bring manufacturing back into the U.S., aid in negotiating fairer trade deals with other countries and help raise revenue.
To re-shore U.S. manufacturing, tariffs likely need to be permanent to spur the capital investments required to set up domestic factories. But a permanent tariff can't be used as leverage to negotiate trade agreements since permanency means there is no climbdown. Plus, a reduction in the import of foreign goods through an effective tariff would seemingly decrease potential tariff revenue.
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Meanwhile, if tariffs are to be used as a negotiation tactic, this means tariffs can be reduced or even removed. This disadvantages domestic U.S. manufacturing, which likely requires several years of tariffs and large investments to set up factories or production. Because of this, Carson argues that when it comes to increasing U.S. manufacturing and increasing tariff revenue, "there's a mix of those things, but you can't have both of those things."
As a 90-day pause on most tariffs — except for those imposed on China — continues, negotiations between the U.S. and its trade partners are ongoing.
Finding Safer Bets As Trump Tariffs Drive Markets
The outsize effects of tariffs on the market can't be overstated. "It's a major dislocation of the global economy," said Carson. "In the very short run, at the very least, there's going to be big dislocations, even if a lot of these tariffs come down quite a bit."
A measured approach to ramping up portfolio exposure remains the best course of action, even if the market is showing signs of a recovery. "It makes it very difficult to get any kind of edge in that market," Carson said.
"Even if the market collectively feels comfortable with where things are priced, things can just change so radically in a way that is just not usual, because Trump can do things unilaterally on trade," he added.
The uncertain nature of Trump tariffs means even traditionally defensive stocks are not immune to market downdrafts. For example, Berkshire Hathaway plunged on April 4 along with the broader market.
There's also a risk of money flowing out of risk-off assets and back into risk-on assets if the market rally continues to strengthen.
"The defensive names will do badly if things get better, but they won't do that well if things get really bad, especially if there's massive selling," Carson said.
Learning To Adjust To A Trump Tariff-Driven Market
To find leading stocks in a news-driven market, Carson says to focus on industries that are insulated or even immune from tariffs. This includes medical stocks and growth names like Netflix or Spotify, which do not produce a physical product subject to tariffs.
Traders should also take profits when possible and reduce risk through smaller position sizes. Small pilot positions can be used to try out some promising stocks, but can be cut loose when they underperform.
Trading strategies can also be adjusted as needed. Carson says he shies away from swing trading — making quick trades — because it isn't worth the effort, particularly in a volatile market.
Sometimes, the winning move is not to play. "I'll just not trade as much," Carson said of volatile market downtrends. He later added, "I'm usually just losing ground when I should just be preserving my capital financially and emotionally."
Follow Mike Juang on X at @mikejuangnews and on Threads at @namedvillage.
