There is still a difference in how people view the effects of Trump’s tariffs on businesses and the US economy. While major tech companies remain strong and their stocks perform well despite the tariffs, this is not the case for all companies in the S&P 500. Of the 65% of companies that have reported their second-quarter earnings, 52% saw their profit margins decrease, even though some reported higher sales.

Performance Gap Between Companies

The difference in performance is even more pronounced when comparing smaller companies to the top 10 firms in the index, like Nvidia, Microsoft, and Amazon. These big players are helping to boost the overall index, while other companies struggle to maintain profitability. Tariffs are also affecting industries outside of technology. For instance, Ford reported an adjusted EBIT drop of $800 million in Q2 due to tariff impacts. General Motors faced $1.1 billion in costs related to tariffs, and Stellantis saw an increase of $350 million in costs. Manufacturers are experiencing pressure, but they’re not passing all their costs onto consumers just yet. Although the stock market has flourished this year due to an AI boom led by big tech, other businesses are facing challenges from tariffs. As of August 5, 2025, there is a significant divide between the leading tech companies and others. The S&P 500 Equal Weight Index (RSP) is trailing the market-cap-weighted S&P 500 (SPY) by over 12% this year, marking the widest gap since the dot-com era. This suggests a pairs trading strategy could be effective—going long on tech leaders while shorting the broader market.

Impact Of Tariffs On Profits

For companies outside of artificial intelligence, the recent tariffs are clearly hurting profits. In July 2025, the Producer Price Index showed a 0.5% rise in costs for these businesses, while the Consumer Price Index only increased by 0.2%. This indicates that these companies are absorbing costs instead of passing them to consumers. Therefore, buying put options on industrial or manufacturing ETFs might be a smart move to bet on ongoing pressure on profit margins in these sectors. The AI boom is the primary driver of the stock market, with a few large tech stocks accounting for almost all of the S&P 500’s gains in 2025. To take advantage of this strength, traders might consider call options on the Nasdaq-100 ETF (QQQ) in the coming weeks. However, we need to remember that such concentration in one sector makes the entire market vulnerable. This narrow leadership resembles a house of cards, heavily reliant on the AI narrative remaining strong. With September often being a weak month for stocks, now could be a good time to consider protective measures. The market’s volatility we witnessed in autumn 2023 serves as a reminder that changes can happen quickly in a thinly led market. Despite the current calm in the market, the CBOE Volatility Index (VIX) is trading near yearly lows around 13, indicating a sense of complacency. This low insurance cost makes buying protective put options on the SPY a cheap way to hedge, providing a safety net if enthusiasm for AI starts to fade in the coming weeks. Create your live VT Markets account and start trading now.

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