Electronics products are set to be included in upcoming sectoral tariffs, with pharma tariffs expected to follow in the next month or two. The US has experienced ‘soft entries’ through intermediaries with China regarding these tariffs.
There were initial expectations for a strong opening in tech stocks due to an earlier tariff reversal. However, the situation is now reversing, and multiple changes may occur in the interim.
Shift In Policy Momentum
These new tariff expectations point to a shift in policy momentum that had initially encouraged short-term optimism, particularly within technology sector equities. Traders had responded to the earlier rollback by increasing exposure to tech-linked derivatives, anticipating upward movement and volatility that would support leveraged positions. But now, with electronics being brought into the upcoming measures, any benefits from the rollback are being offset quickly.
The current environment suggests that prior assumptions about tech strength need to be reassessed. What had looked like a re-opening of opportunity is narrowing instead. The inclusion of electronics products in incoming tariff lists not only dims the earlier sentiment but also introduces a layer of uncertainty in pricing behaviour, particularly in forward markets. With pharma also under consideration for similar treatment in the short term, it points to a broader reapplication of pressure on sectors previously considered to be stabilising.
Washington’s engagement via ‘soft entries’ has created a temporary buffer, but it hasn’t altered the direction of policy. These informal talks have not yielded a change in pace or focus. As a result, positions that rely on relative stability between key trade partners may require rebalancing. For derivative holders, especially those managing contracts with exposure to the next two to three months, we are already seeing tighter spreads and some repricing in options, as hedging costs begin to rise.
Edwards’ earlier commentary alluded to strength in semi-conductor demand acting as a counterweight to policy tightening, but with electronics now facing direct trade action, the validity of that idea weakens. Price action across recent sessions confirms that markets are discounting earlier bullish sentiment. Derivative traders need to watch flow patterns tied to electronics, since what was a sector providing lift has turned into one signalling added pressure.
Increased chatter around pharma measures, while yet to be confirmed, has already introduced preemptive moves in the relevant hedging instruments. A number of flow desks have started to adjust risk modelling, particularly for directional strategies that lean on regulatory predictability. While pharma historically responds less sensitively than tech to tariff shifts, the directionality this time could disrupt assumptions about margin resilience, particularly in firms with large export exposure.
Fluctuating Liquidity Period
One should also consider that we’re heading into a period where liquidity can fluctuate more dramatically, particularly in response to announcements. Hurst was correct to note that options pricing hadn’t yet caught up with the shift in expectations, but that gap is now closing. Treasury and commodity-linked contracts have already reflected more cautious positioning, and we expect that trades with a 60- to 90-day horizon may begin incorporating wider volatility bands.
The next few weeks, particularly ahead of any further confirmation from Washington or Beijing, could see short-dated contracts becoming even more responsive to policy hinting. This is unlikely to remain an issue isolated to tech and pharma; adjacent sectors that rely on cross-border inputs may also experience ripple effects, particularly as intermediaries are scrutinised more closely.
For those who rely on momentum and correlation models, historical behaviour may not offer much help in the near term. The weight of current developments is skewed towards weakening optimism and increasing intervention—both of which suggest the need for more granular trade structuring in the options market.
