Energy, tech, and financial sectors are expected to bounce back once tariff-related market swings subside, according to 22V Research’s latest analysis.
Amid the turbulence caused by President Donald Trump’s trade war, certain sectors within the S&P 500 have been hit harder than others. However, strategists from 22V Research have identified three key sectors—energy, technology, and financials—that are poised for a strong rebound as tariff-induced volatility eases. These sectors have seen significant declines recently, but analysts predict they will outperform once market conditions stabilize.
Impact of Tariffs on Market Volatility
In April, sectors within the S&P 500 experienced heightened volatility due to the ongoing trade war, with tariff news playing a large role in driving market fluctuations. According to 22V Research, the energy sector was particularly affected, with tariffs accounting for over 90% of its volatility in the past month, the highest among all S&P 500 sectors. This marks a notable increase from around 50% earlier in the month when Trump introduced a new set of levies.
The energy sector alone dropped by 16% during this period, primarily due to the tariffs’ impact on supply chains and commodity prices. However, 22V Research believes that once tariff-related volatility diminishes, the sector will experience a strong recovery. The firm’s analysis suggests that as tariffs contribute less to market fluctuations, stocks in these sectors will bounce back sharply.
Short-Term Opportunities for Risk-Tolerant Investors
Kevin Brocks, director at 22V Research, emphasized that while long-term positioning is challenging due to the ongoing tariff risks, short-term opportunities are ripe for risk-tolerant investors. According to Brocks, sectors like energy, tech, and financials stand to outperform in the coming weeks if tariff volatility decreases. As markets react to shifting trade policies, these sectors offer attractive investment prospects for those looking to capitalize on a potential rebound.
Signs of Recovery and Increased Investment
Recent data shows that investors are already beginning to re-enter these sectors. Energy-focused ETFs, for instance, saw $129 million in inflows last week, some of the highest flows among sector-based ETFs, according to Bank of America. In addition, hedge funds have been increasing their exposure to U.S. financial stocks, marking the largest buying spree in four months, as reported by Goldman Sachs.
The trend of increasing investments in energy, technology, and financial sectors reflects growing confidence that once tariff-related volatility subsides, these areas will deliver strong returns.
Volatility and Market Outlook
Despite signs of recovery in certain sectors, the overall market remains sensitive to the swings in trade policies. The Cboe Volatility Index (VIX), which measures market uncertainty, has decreased from its five-year high but remains above its 12-month average. This continued volatility indicates that while some calm has returned, tariff-related shocks may persist, keeping the market in a state of flux for the time being.
Conclusion: Positioning for Recovery
The outlook for energy, technology, and financial stocks is positive, especially as the risk associated with tariffs begins to ease. With strong flows of investment and sector-specific volatility declining, these industries are set to outperform in the short term. For investors looking to navigate the current market turbulence, focusing on these sectors may offer the best opportunities for growth.
