President Donald Trump’s announcement of extensive “reciprocal tariffs” last week took investors by surprise. However, the emergence of negotiation-related news and a mistaken report about a 90-day pause seemed to offer some hope to traders. Meanwhile, hedge funds likely played a role in sustaining share prices as they closed their short positions.
As investors continued to process President Trump’s significant tariff proposals, markets experienced volatility reminiscent of the early days of the COVID-19 pandemic. On Monday, stocks initially fell further, but a partial recovery was led by some major tech companies. The S&P 500 dipped into bear market territory, having dropped 20% from its mid-February peak, before recovering most of the losses to end the session 0.23% lower. The Nasdaq Composite displayed a similar trend, closing the day with a 0.1% gain, while the Dow Jones Industrial Average fell approximately 350 points, following last week’s historic back-to-back losses of over 1,500 points.
Jay Hatfield, CEO of Infrastructure Capital Advisors, stated that markets were unprepared for the protectionist measures that Trump announced at the White House on Wednesday. A 10% blanket tariff became effective on Saturday, with plans for higher taxes on imports from countries with trade deficits with the U.S.
Hatfield remarked on the unexpected nature of what he referred to as the “chart of death.” Despite this, stocks did not plummet on Monday as more than 50 countries reportedly contacted the White House to negotiate, despite false reports of a 90-day tariff pause. The decline of the S&P below 5,000, just over a month after it exceeded 6,100, reached a natural support level according to Hatfield, who suggested that while some stability had returned, volatility could still lead to dips to levels like 4,800 or 4,600.
A possible reason for the buoyancy in share prices was the prevailing uncertainty. The CBOE Volatility Index (VIX), often referred to as the “fear gauge” of Wall Street, temporarily exceeded 50 multiple times throughout the session, marking the most sustained spike since the pandemic. This elevated volatility indicated that hedge funds were securing their positions by buying puts—options to sell assets like the S&P 500 futures contracts at a predetermined price. These options become profitable when the index’s value falls below the option’s strike price. High volatility often motivates traders to close these positions to ensure gains before a potential market rebound.
Hatfield commented on the role of hedge funds in market stabilization thanks to their purchasing activity. He noted that his small hedge fund acquired S&P 500 puts on Friday, then sold them on Monday, leveraging their limited long exposure to the index. “If you never cover your shorts,” Hatfield noted, “you never make money.”
The uncertainty over tariffs produced various market winners and losers on Monday. Notably, chip stocks performed well, with Nvidia and Broadcom shares rising by 3.5% and 5.4%, respectively. Amazon and Meta also contributed to gains among tech giants, with both companies’ stocks increasing by more than 2%.
However, on a different trajectory, Apple and Nike suffered declines. Apple shares have dropped nearly 20% since Wednesday, falling another 3.7% on Monday. The company is notably reliant on China, now facing a 54% tariff, which could increase by another 50% if China’s retaliatory measures are not lifted. Nike faces similar challenges, as it sources much of its production from India and other Southeast Asian countries, all affected by steep tariffs. The auto industry, including companies like Stellantis and Ford, continued to see declining shares as it grappled with a 25% tariff on all foreign cars and parts.
While some sought safe-haven assets amidst the market volatility, Treasuries experienced a selloff as the 10-year yield rose over 20 basis points to 4.20%, and the price of gold fell.
This story was initially published on Fortune.com.
