U.S. stocks fell sharply on October 10, 2025, following President Trump’s threat to increase tariffs on Chinese goods, citing Beijing’s new restrictions on rare earth metals. The Dow Jones fell by 1.9%, the S&P 500 by 2.71%, and the Nasdaq by 3.56%. Prior to the announcement, markets were stable.

Trump mentioned a planned meeting with President Xi at APEC in South Korea might not proceed. Beijing’s recent restrictions require foreign companies to get a license for products with over 0.1% rare earth content, effective December 1.

Market Volatility Soars

Market volatility soared, with the VIX index rising by 12.8%. Defensive ETFs and strategies like long-short investing gained attention, offering potential protection and opportunities.

The AGF U.S. Market Neutral Anti-Beta Fund rose by 2.6% last week, the AdvisorShares Ranger Equity Bear ETF by 6.4%. The Simplify Managed Futures Strategy ETF increased by 1.2% last week and the KFA Mount Lucas Managed Futures Index Strategy ETF rose by 0.8%. These ETFs have varying yields and fees, providing different options for investors during market turbulence.

With the market’s fear gauge, the VIX, jumping over 12% last Friday, we should anticipate continued high volatility in the coming weeks. Historically, during the trade escalations of 2019, the VIX consistently spiked above 20 and even touched 25 on similar tariff news. Buying call options on the VIX or volatility-linked products like VXX could be a direct way to profit from rising market uncertainty.

Given the sharp drop in the Nasdaq and S&P 500, we should look to protect our broader equity portfolios from further declines. Purchasing put options on major index ETFs like the SPY and QQQ for November or December expirations is a prudent hedging strategy. This provides downside insurance heading into the Dec. 1 implementation of China’s new export rules.

Technology Sector Vulnerabilities

The technology sector is particularly vulnerable, as shown by the Nasdaq’s 3.56% plunge on October 10. We saw a similar pattern in May 2019, when the semiconductor index (SOX) fell over 16% in a single month following an unexpected tariff hike. Considering puts on semiconductor ETFs or shorting exposed tech names seems like a sound strategy, as they are highly dependent on both Chinese supply chains and rare earth metals.

Conversely, China’s restriction on rare earths creates a clear opportunity in non-Chinese producers. With China controlling an estimated 90% of the world’s rare earth processing, companies like U.S.-based MP Materials could see a surge in demand and value. We can look at buying shares or call options in these companies to play the supply squeeze.

We must also remember how China has retaliated in the past, often targeting U.S. agriculture. During the 2018 trade war, China’s tariffs caused U.S. soybean exports to the country to fall by more than 70%. Traders should therefore be cautious with agricultural commodities and might even consider short positions on soybean futures if this pattern repeats.

For those looking for simpler ways to navigate this, certain ETFs are designed for this exact environment. An ETF like the AdvisorShares Ranger Equity Bear ETF (HDGE) directly shorts the market and gained over 3% last Friday. Another option is the AGF U.S. Market Neutral Anti-Beta Fund (BTAL), which is designed to go up when high-beta stocks go down, offering a different form of portfolio protection.

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