U.S. equities may continue their recent strong performance, aided by the easing of trade tensions between Washington and Beijing. According to Deutsche Bank, the S&P 500’s outperformance is expected to persist in the short term, as U.S. companies benefit more from the tariff reductions.

However, Deutsche Bank analysts caution against expecting a long-term rally. Tariffs, although currently reduced, are perceived to still impose a greater burden on U.S. companies compared to European ones. The trend of broader underperformance might continue until there is a substantial reduction in tariffs offering relief to affected companies.

Analyzing Us Stock Performance

This article from Deutsche Bank highlights that U.S. stocks have lately been doing well, partly because trade tensions with China have cooled off. With fewer barriers to selling goods across borders, American firms – especially those listed on the S&P 500 – are likely to see their profit margins improve, at least over the coming weeks. That’s the front-end picture.

But there’s a clear caution here. While trade restrictions have been dialled back, they haven’t disappeared. According to the same team, those remaining duties are still skewed in a way that makes U.S. businesses carry more of the load than their European counterparts. That pressure hasn’t gone away, and for now, it means the outperformance we’ve seen may not last much longer unless there’s a deeper rollback of these tax measures.

So what are we looking at going forward?

If we consider the past few trading cycles, price action has largely followed expectations outlined by the Deutsche team. The short-term advantage they detail – especially for sectors more directly tied to foreign sales – suggests we could see more investors continue rotating into names with heavy global exposure. But there’s a catch. When we factor in the medium-term weight of transactional costs and sourcing issues, it becomes clearer that traders will need to keep a close eye on both macro narratives and how companies are pricing in this relief ahead of actual earnings delivery.

Looking at Kelly’s point from the report, it also seems that a one-sided rally may hit resistance if global manufacturing doesn’t pick up pace. The message is not complicated – temporary conditions can prop up performance, but they’re not the same as structural shifts.

Market Strategy Considerations

We see that risk premiums are compressing too quickly in some sectors – notably consumer tech and industrial automation – which might make positions there more volatile than they appear. Hedging those exposures using short-dated index options or selecting defensive call spreads could still make sense over the next three to four weeks.

Furthermore, the report hints that European equities are faring differently. Though not under the same tariff load, the demand picture in the EU remains somewhat mixed. Muller mentions that unless major fiscal policy steps are announced soon by Brussels, there may not be enough of a catalyst to draw capital back into eurozone assets in the near term.

This wider divergence between American and European companies calls for more selective positioning. For us, that means revisiting how implied volatility skews are developing between exchanges. Spread trades involving regional indices may offer clearer opportunities now, but only where implied vols do not yet reflect upcoming policy deadlines or central bank data drops.

There’s been a temptation among some participants to lean back into risk-on strategies, especially with the S&P’s steady climb. What this research warns us about is that the backdrop hasn’t materially shifted enough to justify stretched multiples. It’s not the sentiment that’s unreliable, but rather the structural mechanics beneath it that have yet to offer firm support.

In short, we expect more directional interest in U.S. index futures, albeit on a more tactical basis. Positions will probably need faster rotation, with expiries kept tight. Given that, we’ll be watching margin ratios quite carefully and considering elevated gamma exposure whenever VIX levels dip below the 13 mark again, as that tends to precede more sudden pullbacks.

As traders, there’s space here to act decisively – not reactively – if the tariff themes resurface via upcoming WTO meetings or trade policy speeches from key White House officials. For now, the tactical tailwind remains in place, but unlike broader shifts in fundamentals, it comes with a fuse.

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