European stocks started the month with a decline. Key indices showed the following drops: Eurostoxx down 1.2%, Germany’s DAX down 1.3%, France’s CAC 40 down 1.2%, the UK’s FTSE down 0.6%, Spain’s IBEX down 0.8%, and Italy’s FTSE MIB down 1.3%. Market sentiment is cautious as the US prepares to finalize a list of reciprocal tariffs. While Apple and Amazon recently reported positive earnings, worries about the tariffs are affecting risk appetite. US futures also fell, down about 0.4%. Attention is now on the upcoming US labor market report, which could influence the market before the week ends.

US Tariffs Impact

European markets are sharply dropping this morning due to concerns about new US tariffs. This uncertainty is weighing on US futures, even with strong earnings from major tech firms. The US labor market report coming out later today is crucial. Consumer spending data has weakened in the second quarter of 2025, and economists expect Non-Farm Payrolls around 185,000, indicating a cooling job market. If the number is unexpectedly strong, it could be seen negatively, suggesting the Federal Reserve may need to keep its current policies in place. Market fear is rising, with the VIX index, which measures market volatility, increasing over 15% this week and trading above 23. Concerns about tariffs from companies like Apple and Amazon are driving this fear, indicating that no one is exempt from the impact. In this environment, a defensive strategy is advisable for the weeks ahead.

Strategies For Uncertainty

To protect your investments, consider buying put options on major indices like the Eurostoxx 50 or the S&P 500. This will help hedge against further declines if trade tensions worsen or economic data disappoints. These options should be held for 30 to 45 days to cover this uncertain period. Another strategy is to trade volatility itself. With the VIX elevated, purchasing VIX call options or futures could yield profit in case of further spikes in fear. History shows that during the US-China trade war in 2018-2019, high volatility periods rewarded those prepared for it. It’s also important to recall how markets reacted to initial tariffs in 2018, which resulted in sudden drops followed by unpredictable, news-driven trading for months. The current situation between the US and Europe feels similar, suggesting that this is not just a temporary issue but the beginning of a more volatile phase. This pattern favors strategies that capitalize on price fluctuations rather than a clear market direction. Given the rise in implied volatility, selling out-of-the-money call option spreads in certain overbought sectors can be a good way to generate income. This strategy benefits from sideways or downward price movements and a eventual decline in volatility, allowing us to take advantage of the market’s current fears. Create your live VT Markets account and start trading now.

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