We've rarely seen anything quite like the market reactions to President Trump's second-term policies.
The recent tariff saga has turned Wall Street into what we call a "policy pendulum" – dramatic swings based on a single tweet or press conference. Let's break down what's happening and how smart traders can position themselves.
What Really Happened?
On April 9, 2025, when Trump announced the 90-day suspension of most new tariffs (excluding those on China), we witnessed the third-largest single-day gain in S&P 500 history – a staggering 9.5% surge.
The Nasdaq jumped even higher at 12%.
But here's the context many missed: this rally followed a devastating week-long selloff that had already wiped out $6 trillion in market value.
This pattern isn't new. During Trump's first term, we saw similar market behavior with the Tax Cuts and Jobs Act (TCJA), which initially boosted markets before trade war concerns took over.
The second term has followed a similar playbook but with even more pronounced volatility.
Sector Winners and Losers in the Trump Economy
The tariff-driven uncertainty has created clear winners and losers:
Defensive Plays:
Utilities, consumer staples, and real estate have attracted modest inflows as investors seek safety amid the chaos.
Tech Under Pressure:
The Nasdaq has been particularly volatile, entering bear market territory with a 19% YTD decline before the April rebound. Tech stocks face greater tariff exposure due to global supply chains.
Financial Sector Whiplash:
Banks and financial services saw their fastest selloff since 2016 during the tariff panic, only to rebound sharply on the announcement of the pause.
Leveraged ETFs in a Volatile Market
This is where things get particularly interesting for active traders. Leveraged ETFs, which use derivatives to magnify daily returns, have become focal points in this volatile environment.
Take the T-Rex 2X Long DJT Daily Target ETF (DJTU) launched in March 2025.
This ETF offers double the daily returns of Trump Media & Technology Group (DJT). When the market surged 12% after the tariff suspension, theoretically a 2X leveraged tech ETF could deliver 24% returns in a single day.
But remember – this works both ways.
During the market rout preceding the tariff pause, leveraged ETFs amplified losses significantly. JPMorgan analysts noted that leveraged ETFs were poised to dump $23 billion in tech stocks alone to rebalance their portfolios.
Our Trading Strategy for the Current Environment
Having tracked policy-driven markets for years, here's our approach to handling the current situation:
- Tactical, Not Strategic Positioning:
The current market requires nimble trading rather than long-term positioning. We're keeping positions smaller and more tactical than usual. - Sector Rotation Awareness:
Pay close attention to money flows between cyclical and defensive sectors. The market bifurcation creates opportunities as funds shift rapidly. - Leveraged ETF Day Trading:
For experienced traders only, using leveraged ETFs as short-term tactical tools can be profitable. But never hold overnight unless you have strong conviction and can tolerate substantial drawdowns. - Focus on "Policy-Proof" Assets:
Look for companies with inelastic demand and minimal exposure to tariff-sensitive supply chains.
How This Compares to Previous Market Shocks?
This market volatility differs significantly from previous crises.
Unlike the 2008 financial crisis (28% equity decline with multi-year recovery) or even COVID (33% drop but rapid V-shaped recovery), Trump's policy-induced volatility is:
- More responsive to singular events rather than underlying economic fundamentals
- Features more rapid recoveries following policy reversals
- Creates more pronounced sector divergence than broad-market trends
What to Watch For Next?
The 90-day tariff pause provides a temporary reprieve, but traders should watch for:
- Comments from administration officials about permanent policy shifts
- Sector-specific tariff carve-outs or extensions
- Market internals: are institutions buying back in or remaining cautious?
- The reaction of leveraged ETF flows, which could amplify the next market move
The Bottom Line
Trump's policies have created a trader's market – high volatility, quick reversals, and significant sector rotation. While this environment may frustrate long-term investors, active traders who understand the policy-market dynamic can find substantial opportunities.
Just remember: in this environment, risk management trumps all other considerations.
Keep positions sized appropriately, use stops religiously, and don't try to predict the next policy tweet – react to what actually happens.
What's your experience trading through this volatility? Have you used leveraged ETFs to capitalize on these swings?
Let us know in the comments.
Stay sharp and trade well!
