The US economy began the year robustly, but the Trump administration’s trade policies have created uncertainty. This has led to market turbulence and challenges for businesses in terms of investments and hiring.

Despite the current economic conditions, there remains an unclear timeline for resolving trade issues. Consequently, businesses are postponing investments due to this uncertainty.

Optimistic Job Growth

There is an optimistic outlook for job growth within the US economy, aided by advancements in AI. Debt levels’ potential risk will depend on overall confidence.

There are ongoing questions regarding the US’s long-term role on a global scale. Individuals are advised to conduct their own research when considering investment decisions.

At the start of the year, the American economy displayed strong momentum, yet the trade standoff introduced by Washington has cast a long shadow. With no firm resolution in sight, firms have responded conservatively. They are not investing at the pace previously expected, nor are they hiring with the same conviction. This cautious approach is not without reason—policy noise has made forecasting more difficult, especially for planning around imported goods and longer-term capital expenditure projects.

From a markets standpoint, these trade-related tensions have triggered pockets of volatility. The message buried in the activity isn’t hidden: many are uncertain about when or how current policies will shift, and this uncertainty is shaping how capital is being priced. That ripple effect feeds directly into our pricing models and cross-asset correlation assumptions, particularly where equity derivatives intersect with interest rate hedging.

Meanwhile, on the structural front, developments in automation and machine learning are lending support to employment expectations, which may lead to longer-term corporate confidence if productivity gains become more visible in Q3 and beyond. However, this upside remains offset by concerns around corporate and public debt levels—we see the market still trying to digest how these balances affect broader risk appetite.

International Position Recalibration

There’s also a recalibration occurring in terms of the United States’ position internationally. This isn’t just about tariffs or bilateral relations; it’s about how global capital allocates recurrent risks when the anchor currency’s policies seem less predictable. This hesitation has shown up in real-time across options on broad equity indices—demand for downside protection has not disappeared since the first quarter. We’re keeping an eye on volatility surfaces in both US and Asia-Pacific markets, where gamma risk has increased modestly.

Following current themes, directionally biased exposures may require active adjustment. Calendar spreads, particularly in sectors tied to international supply chains, continue to present opportunities for relative value strategies due to repeated repricing as narratives shift. Volatility traders may consider skew positioning in these sectors, where implieds remain persistently elevated versus their historical averages. That tells us the market expects further moves, not just noise.

We’ve reviewed flows into protective puts across cyclicals and seen a rise in term-structure steepening strategies—another clue that risk managers across the board aren’t viewing present calm as sustainable. This doesn’t mean panic is setting in, but caution has become deliberate. Where we’ve seen resilience in credit spreads, we are pairing that with tight stop-loss rules around core equity holdings. The aim is to remain protected while harvesting what positioning we can.

Mitigating exposure remains key—where one-month implied vol remains decoupled from realised, there’s often a short-term mean reversion opportunity. We’re focused on using dispersion within sector ETFs for diversifying those trades, especially where positioning has become one-directional after central bank speeches or data prints.

For those adjusting their volatility assumptions, it’s worth watching the Fed’s forthcoming minutes. If rate sentiment shifts again, the knock-on effects will cascade beyond Treasuries—it’ll alter the way forward curves in S&P 500 options behave and might change what strikes remain active.

We’re continuing to evaluate flows through major derivatives books and have increased attention on the demand for VIX-linked ETPs as a measure of institutional hedging. Combined with proprietary indicators, this gives clearer insight into how aggressively downside risk is being managed—not just anticipated rhetorically.

As always, we recommend screening strategies through independent metrics, but doing so alongside real-world positioning allows for greater alignment with actual market exposures. This approach aims to avoid theoretical risk management and stick to what’s actually moving.

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