Strategic Opportunities Amid Trump's Tariff Volatility

The Trump administration's tariff policies have unleashed a period of extraordinary volatility, with courts, trade partners, and markets locked in a high-stakes game of regulatory whack-a-mole. As legal stays, delayed tariffs, and diplomatic spats dominate headlines, investors face a critical question: How to position for the rebound once clarity emerges? The answer lies in exploiting near-term oversold conditions in Asia-Pacific equities, capitalizing on the inverse correlation between tariff noise and bond yields, and using volatility spikes as contrarian buy signals. Below, we dissect the tactical playbook for navigating this "tariff tides" environment.

The Oversold Catalyst: Japan and South Korea ETFs (EWJ, SKWY)

The iShares MSCI Japan ETF (EWJ) and the Korea ETF (SKWY) have been hammered by tariff fears, particularly as the U.S. extended its 34% China tariffs to Hong Kong and targeted South Korea's auto exports. Yet these ETFs now sit in oversold territory, with EWJ down 18% year-to-date and SKWY off 12%—despite both countries' central banks maintaining accommodative policies to offset trade headwinds.

Why now?
- Tariff Clarity Timeline: The Court of Appeals' July 31 hearing on reciprocal tariffs could resolve a key overhang. Analysts at Wells Fargo estimate a 70% chance of tariffs being scaled back post-appeal, citing the administration's preference for diplomatic resolution over court losses.
- Bessent's 48-Hour Deal Window: Treasury Secretary Bessent has repeatedly signaled that major trade disputes (e.g., with Japan over digital taxes, South Korea over auto quotas) will be resolved within 48 hours of tariff deadlines—a pattern holding since April.

Action: Use the to identify support levels. A rebound could begin if the July 31 court ruling goes the administration's way, or even if it doesn't—markets often price in the worst case ahead of major events.

The Inverse Tariff-Yield Relationship: Bond Markets as a Contrarian Gauge

While equity investors fixate on tariff headlines, bond markets are whispering a different story. The inverse correlation between Trump's tariff announcements and 10-year Treasury yields has held firm since April 2025: every spike in trade rhetoric (e.g., the June 27 Canada DST dispute) has sent yields plunging as investors flee risk.

Why does this matter?
- Tariff Calm = Rate Hikes Resumed: If tariffs ease post-July 31, bond yields could rebound, signaling renewed Fed confidence in growth—and a tailwind for rate-sensitive sectors like industrials and financials.
- Rotation Opportunity: Use falling yields during tariff spikes to rotate into defensive bonds (e.g., iShares Core U.S. Aggregate Bond ETF (AGG)), then pivot into equities once yields stabilize.

Volatility as a Buy Signal: The VIX Contrarian Play

The CBOE Volatility Index (VIX) has surged each time tariff news hits, yet history shows these spikes often mark short-term lows. Since 2020, the S&P 500 has averaged a 4.5% gain within two weeks of VIX spikes above 25—a pattern holding even during the 2023 trade wars.

Tactical Edge:
- Buy the VIX Spike: When tariffs dominate headlines and VIX breaches 25 (as it did on July 5 following the Court of Appeals' stay), treat it as a contrarian signal to dip into tariff-affected sectors.
- Focus on Turnaround Plays: Semiconductor firms (e.g., ASML, Lam Research) and auto suppliers (e.g., Honda, Hyundai) could rebound sharply if Section 232 investigations into critical minerals and vehicles are delayed or diluted.

Wells Fargo's Trim-and-Target Strategy

While trimming overvalued sectors like tech (which has a 20% premium to historical norms), Wells Fargo urges investors to “target tariff-affected dips.” Their model suggests:

1. Sell: Growth-oriented ETFs like Invesco QQQ (QQQ) if bond yields rise post-tariff clarity.
2. Buy: Value-oriented ETFs like iShares U.S. Value ETF (IVE), which holds tariff-sensitive industrials and financials poised for a rebound.

Conclusion: Position for the Tariff Tide Turn

The path to profit lies in three steps:
1. Dip into EWJ/SKWY at current oversold levels, with a stop-loss below recent lows.
2. Watch the VIX—a July 31 court ruling or Bessent's 48-hour deal window could trigger a volatility-driven rebound.
3. Rotate into value if bond yields stabilize, prioritizing industrials and financials.

The key is to avoid panic and instead treat tariff volatility as a liquidity event—a chance to buy quality assets at prices last seen in 2023. The administration's "America First" rhetoric may dominate headlines, but markets have always rewarded those who look past the noise to the policy turning points.

Final Note: Monitor the July 31 court decision closely. A ruling against the tariffs would ignite a broad relief rally; even a delay could signal the administration's shift toward diplomacy over brinkmanship—a win for global equities.

Invest wisely in the calm before clarity.