Sell the Uncertainty, Buy the Clarity
Relief Rally Coming?
The US stock market has been under pressure in Q1 2025, with tariff uncertainties playing a significant role in driving a downtrend.
Will April 2, Tariff Day, reverse this trend?
Hypothesis
The market could rally post tariff announcement due to the resolution of tariff uncertainty, even if tariffs are higher than expected.
Breaking It Down
Markets often dislike uncertainty more than unfavorable outcomes, a phenomenon rooted in behavioral finance and reflected in historical patterns. When a major catalyst like Trump’s tariff announcement looms, investors tend to price in worst-case scenarios, leading to heightened volatility and selling pressure beforehand (as we’ve seen in Q1 2025).
Once the event occurs, the removal of ambiguity can trigger a relief rally, even if the news isn’t entirely positive, as long as it’s not drastically worse than anticipated. This aligns with the “buy the rumor, sell the news” dynamic, but in reverse: “sell the uncertainty, buy the clarity.”
However, there are caveats:
Magnitude Matters: If the tariffs announced on April 2 are significantly higher or broader than the market’s current expectations (e.g., exceeding the 25% on Canada/Mexico or 10% on China already in play), the rally could be muted or reversed.
Retaliatory Tariffs: Escalatory retaliation from trading partners could dampen a rally.
Sector Impact: The rally won’t be uniform. Stocks exposed to tariff-sensitive sectors might lag if the tariffs hit their supply chains hard, while domestic-focused or defensive stocks could outperform.
Timing: The initial reaction might be a rally, but sustained performance will depend on how the market digests the longer-term economic implications (e.g., inflation, growth slowdown).
Given the downtrend in Q1 and reports suggesting Trump might soften some tariff stances (e.g., offering breaks to certain countries), I lean toward a scenario where the announcement provides enough clarity to spark a short-term rally, assuming it’s not an extreme outlier.
What Stocks Could Rally The Most?
If we assume a relief rally occurs due to uncertainty resolution, the stocks most likely to benefit will be those that:
Have been heavily sold off in Q1 2025 due to tariff fears (offering a rebound opportunity).
Have exposure to sectors that could see upside from either tariff moderation or domestic economic focus.
Here are a few ideas:
1. Tesla ($TSLA)
Why: Tesla has been volatile in 2025. A less aggressive tariff stance—or clarity on exemptions for auto sectors—could spark a sharp rebound. Its high-beta nature amplifies moves in either direction.
Catalyst: Relief on auto tariffs or confirmation of US production advantages.
2. General Motors ($GM)
Why: GM, a US automaker, has been hit by tariff uncertainty, especially with 25% levies on Canada/Mexico affecting its supply chain. A delay or reduction in auto tariffs (as hinted in late March reports) would boost its outlook. Domestic focus under Trump’s agenda also favors GM.
Catalyst: Softer-than-expected tariffs on North American trade.
3. Intel ($INTC)
Why: Tech stocks like Intel have been dragged down by tariff fears, given reliance on global supply chains (e.g., semiconductors from Asia). Clarity that avoids steep China tariffs—or incentives for US manufacturing—could drive a rebound. Intel’s domestic production push aligns with Trump’s rhetoric.
Catalyst: Tariff exemptions or moderation for tech components.
4. Caterpillar ($CAT)
Why: As an industrial giant, CAT has been pressured by tariff uncertainty affecting global demand and input costs (e.g., steel/aluminum). A resolution that’s not overly punitive could lift its stock, especially if US infrastructure spending is paired with the announcement.
Catalyst: Clarity on industrial tariffs and domestic growth signals.
5. NVIDIA ($NVDA)
Why: NVIDIA, a tech leader, saw a ~13% drop in March amid tariff chaos. Its exposure to China makes it sensitive to trade policy, but a rally could follow if tariffs are less severe or if US AI investment is further emphasized.
Catalyst: Milder China tariffs or AI policy boosts.
6. United States Steel ($X)
Why: Steel stocks have been volatile with Trump’s tariff flip-flops. A confirmation of protective tariffs—or even a moderate outcome—could benefit X as a domestic producer, especially if retaliation is limited.
Catalyst: Tariff protection for US steelmakers.
7. Walmart ($WMT)
Why: As a retail giant, WMT has been under pressure from potential cost increases due to tariffs on imported goods. A less aggressive announcement—or one paired with consumer-friendly policies—could ease fears and drive a rebound.
Catalyst: Tariff relief or signs of consumer resilience.
Strategy Considerations
Of course, one could simply buy stocks.
Options are another consideration:
Deepseek showed us the power of catalysts: A well timed catalyst can have a profound impact on options prices.
All stocks listed above have liquid option markets.
If betting with options, focusing on near-term call options, ones expiring in as littles as a week, all the way up to ones expiring in a month or two could capture the potential catalyst-driven move.
If announcement implied volatility is a concern, then one can consider buying post-event if the rally kicks in.
Risk Management: Of course, the above hypothesis could be completely wrong. So managing risk via an appropriate bet size is paramount.
Final Thoughts
A rally is plausible on April 2 if uncertainty dissipates, though the size and duration depend on the announcement’s specifics.
The stocks above may be primed for outsized moves due to their tariff sensitivity, recent underperformance, and options liquidity.
Tariff clarity could be the spark the market needs after a difficult Q1.
Lets see what happens.
Disclaimer: not financial advice.