US equity futures are erasing early gains in a knee-jerk response to a slew of tariff announcements from President Trump which are adding to a negative mood from the previous session.
The tariffs are on a range of items from big trucks to kitchen equipment which may only have a marginal impact on US stocks, but investors will be bracing for something bigger if a new wave of levies on trading partners is starting.
US will also impose a 100% tariff on branded or patented pharmaceuticals.
“Starting October 1st, 2025, we will be imposing a 100% Tariff on any branded or patented Pharmaceutical Product, unless a Company IS BUILDING their Pharmaceutical Manufacturing Plant in America,” Trump said in a social media post.
Trump said there would be no tariffs on pharmaceutical products if companies have broken ground on a US manufacturing plant, or if such a plant is under construction.
After today’s strong Q2CY25 3rd estimate and lower than expected initial jobless claims, US bond yields were higher as well as curve flattened. Markets are now pricing in only 39 bps of cuts in the next 2 meetings against 44 bps of cuts before the data. This led to US equities correcting in today’s session as rate cut hopes dwindled.
Thursday’s sharp intraday swing reveals a more fragile market backdrop for equities, with month- and quarter-end rebalancing and weak seasonal factors colliding with crowded short-vol positioning.
On the surface, implied vol remains contained with fixed strikes falling into month-end despite equities slipping back from all-time highs this week. Dealer hedging, vol-selling and outright long retail flows continue to support dip buying. That was illustrated by the S&P 500 bouncing back to the 6,600 area Thursday where there’s strong gamma gravity and a more positive skew above.
Dealers are historically long-gamma, causing hedging flows that dampen direction. But when flows suddenly flip negative, pockets of weakness emerge — and with positioning already crowded in vol-selling strategies, the market struggles to absorb the shock.
Month and quarter-end rebalancing and the weakness stocks typically show in September are exacerbating the fragility of the rally. For the former, JPMorgan’s desk models estimate sales of about $57 billion, with roughly $18 billion attributed to US defined-benefit pensions specifically. The end result is investors forced to trim equities’ positions after one of the strongest rallies in two decades while dealers are historically long gamma during a seasonally weak buying period.
With corporate buybacks in blackout and systematic strategies already historically long, there’s less of a mechanical bid and any volatility shock could flip the market into forced deleveraging more easily. While the structural bull case is intact, the tactical setup over the next week or so is more vulnerable, raising the risk that contained pullbacks turn into something more.
