Diverging Markets: How to Profit as Trade Tensions Ignite Volatility

The U.S.-China trade war is entering a new phase of chaos, with tariffs, court battles, and diplomatic sparring creating a high-stakes game of “who blinks first.” Yet equity markets are shrugging it off—so far. Meanwhile, gold is soaring as investors bet on prolonged uncertainty. This is a moment for contrarians: the divergence between risk-on equities and the safe-haven surge offers a playbook for profiting from the volatility ahead of the Trump-Xi talks.

1. Equity Markets: Betting on Tech's Resilience

The S&P 500's May surge—its best since 1990—was fueled by tech stocks riding the AI boom. NVIDIA, the linchpin of the AI revolution, is leading the charge. Even as tariffs on semiconductors loom, the market is pricing in a “tech-first” economy where AI adoption offsets trade headwinds.

NVIDIA (NVDA) has outperformed the S&P 500 by 22% since January 2025, driven by its AI chip dominance. Investors are betting that AI's transformative potential will outweigh near-term trade friction.

Play: Buy high-beta tech names like NVIDIA and AMD, which are structurally positioned to benefit from AI's growth, even if trade talks falter.

2. Gold's Rally: The Ultimate Hedge Against Tariff Chaos

While equities rally, gold is acting like a canary in the coal mine. The yellow metal has surged to near $3,300/oz as geopolitical risks (Ukraine war, U.S.-China tariff disputes) collide with the Fed's dovish pivot.

Gold's correlation with equities has inverted this quarter, creating a compelling hedge. GLD, the gold ETF, is up 14% since March 2025—far outpacing the S&P 500's 5% gain over the same period.

Play: Allocate 5-10% of portfolios to GLD. If Trump's 50% steel tariffs survive court challenges, gold could hit $3,500 by Q4.

3. Shorting the Tariff-Sensitive: Industrials in the Crossfire

Not all sectors are thriving. Industrials exposed to tariffs—especially those reliant on steel, aluminum, or Chinese supply chains—are vulnerable. Caterpillar, Deere, and Boeing are all facing margin pressures as input costs rise.

Caterpillar (CAT) has underperformed the S&P 500 by 18% since January, with its stock down 9% as steel tariffs bite. Shorting these names could be a “win-win”: if trade tensions ease, they'll lag the broader market; if tensions rise, their pain deepens.

4. Catalysts to Watch: Nonfarm Payrolls and Legal Limbo

The June 10 nonfarm payrolls report could be the next catalyst. A strong jobs number might embolden the Fed to delay rate cuts, squeezing tech multiples. A weak print could boost gold and defensive assets.

Meanwhile, the legal battle over Trump's tariffs remains a wildcard. The Supreme Court's eventual ruling—likely by late summer—could either lock in punitive tariffs or force a reset. Investors should assume prolonged uncertainty: the White House's vow to “appeal all the way” means this limbo isn't ending soon.

Conclusion: The Contrarian's Edge

The market's current divide—equities shrugging off trade fears while gold soars—creates a clear path for profit:
1. Buy Tech: AI leaders like NVIDIA are playing a long game.
2. Hedge with Gold: GLD is a must-have for portfolios.
3. Short Industrials: Tariffs are a slow-motion train wreck for this sector.

Act now. The Trump-Xi talks could bring a temporary truce, but the structural tension between the world's two largest economies is here to stay. Volatility isn't a risk—it's the opportunity.

Final Call: Position for divergence. The next 60 days will test who's right—the bulls in tech or the bears in gold. Choose your side.