In early April 2025, the U.S. raised tariffs on Chinese goods to an alarming 125%, which triggered significant volatility in global equity markets and spiked the CBOE Volatility Index (VIX) to 60, indicating heightened investor anxiety about a potential trade war.

A temporary truce in May 2025 reduced tariffs to 10%, yet lingering tariffs and unresolved trade issues continued to keep markets on edge, underscoring the necessity for proactive risk management.

JPMorgan's analysis revealed two critical market forces at play: inflationary pressures stemming from tariffs and recession risks, both of which are influencing stock performance and investor behavior.

The Russell 2000 index, which tracks small-cap stocks, fell nearly 2% in April and has seen year-to-date losses exceeding 19%, as small businesses grappled with increased costs and diminished consumer demand.

In light of these challenges, investors are advised to rotate out of sectors heavily impacted by tariffs, such as autos and energy, and instead focus on defensive sectors like utilities and healthcare, which tend to perform well in volatile markets.

The conclusion emphasizes the importance for investors to remain agile and prioritize sectors with lower trade exposure and sustainable growth potential amid ongoing geopolitical risks.

Global diversification is recommended, particularly in less trade-sensitive regions like Europe and Japan, while emerging markets such as Vietnam and India may present selective investment opportunities.

In contrast to the struggles faced by smaller companies, large tech firms like Alphabet and Nvidia have experienced growth, illustrating a stark divergence in sector performance during the tariff crisis.

Despite some declines among tech giants like Apple and Tesla, many major tech firms have benefited from investments in AI and global supply chain diversification, which have helped mitigate their exposure to trade risks.