By Ian Salisbury

President Donald Trump's newest round of tariffs is rocking markets. Investors looking for places to hide have a few good options -- including bonds and gold -- but simply taking their lumps in the stock market might be the best one.

On Wednesday, the Trump administration announced so-called reciprocal tariffs against dozens of countries, including a 34% levy against China, 20% against the European Union. and a 10% base rate on the U.K. and many others.

Following the moves, the stock market sold off sharply, with the S&P 500 down 4.8%, its largest one-day decline in five years. The tech-heavy Nasdaq Composite was down nearly 6%. The Russell 2000, filled with economically sensitive small caps, flirted with a bear market: The index fell 6.7%. All-in-all, U.S. stocks saw more than $3.1 trillion wiped out during the session, according to Dow Jones Markets Data.

While Wall Street had been expecting bad news, several analysts likened the aggressive announcement as a "worst-case scenario." However, the real problem is that it left investors with far more questions than it answered.

"It was understood that last night's announcement could lead to market volatility," wrote Trade Nation analyst David Morrison in a note Thursday. "But many traders also hoped that it would bring clarity and help to banish the uncertainty that has weighed so heavily on equities of late. Unfortunately it hasn't, which is why today's sell-off is so deep."

At least some traditional safe havens have been holding up. Yields on 10-year Treasury notes -- which sat north of 4.8% in January -- declined 0.16 percentage points to 4.04% Thursday, giving bond prices a lift. (Bond yields and prices move inversely.) Gold was down slightly Thursday, by about 1.2%, but hit a record high of $3139 an once on Wednesday, having gained more than 18% so far this year.

And a few stock market sectors known for allowing investors to play defense -- like utilities, healthcare, and consumer staples -- managed to remain largely flat or even eke out gains.

Here's a rundown of options for adding protection to your portfolio -- including staying invested in the stock market so you don't miss out on any rebound.

Bonds

The iShares 20+ Year Treasury Bond exchange-traded fund gained 0.5% Thursday, and is up 6.3% so far this year. But investors looking for safety might be better off in a tamer bond fund, like the iShares Core U.S. Aggregate Bond ETF, with an average duration of just under 6 years, which returned around 0.5% Thursday (and 3% year to date.)

Bond prices move in the opposite direction to interest rates -- and long-term bonds are more interest rate sensitive than short-term bonds. On Thursday, rates fell and long-term bond prices rallied sharply because investors worried a recession could prompt the Federal Reserve to further cut benchmark interest rates.

But there are countervailing forces at work, too. Tariffs tend to raise consumer prices -- in other words, spur inflation. Another bout of inflation could push rates upwards no matter what Fed policy makers would like -- muddying the case for a long-term bond rally.

"Economists are resetting their growth estimates as talk of stagflation, weaker growth coupled with higher inflation, circulates," wrote Cresset Chief Investment Officer Jack Ablin in a note Thursday. "Weaker growth and rising inflation complicate the Fed's efforts to manage inflation and avoid a recession."

Gold

Gold, which has hit more than 50 record highs in the past year, poses a separate set of opportunities and risks.

First the good news: Most of the forces which have driven gold prices higher in recent months remain in place.

Uncertainty around markets, typically good for gold, remains high. And the U.S. dollar, down about 3% this year, continues to weaken. Since gold is priced in dollars, a weaker dollar typically makes gold cheaper for foreign buyers, spurring demand.

In addition, Trump's aggressiveness gives foreign central banks -- which have been big buyers of gold in recent years in order to reduce their reliance on the dollar -- a big reason to continue following that path.

Unfortunately, the secret of gold's rally is out, especially now that small investors have started piling in -- pumping more than $6 billion into gold ETFs in the past month, according to FactSet.

"Gold is very overbought at current levels," noted Morrison. "Despite this, there's nothing that says it can't continue to rally from here. But traders should be aware that the risk of a sharp pullback has risen."

Defensive Stocks

Given the potential downsides of classic diversifiers like bonds and gold, investors might want to look at corners of the stock market that have held up well, despite the volatility. While stocks tumbled sharply Thursday, a few sectors bucked the trend: Healthcare stocks were down just 0.8% and utilities 0.6%, while consumer staples actually rose 0.6%.

Among the market's big winners: frozen potato maker Lamb Weston Holdings, up 10%, after reporting better-than-expected earnings; Kroger, up 5.2%; and Dollar General, up 4.7%.

McKesson, an Irving, Texas-based drug distributor, which has benefited from the U.S.'s aging population and the diet-drug craze -- and was a recent Barron's stock pick -- gained 3.4%.

The three sectors -- healthcare, staples, and utilities -- should continue to shine relative to growthier, more cyclical peers, until the market hits a bottom, an event likely signaled by a major spike in the CBOE Volatility Index or the option market's put/call ratio, wrote Wolfe Research analyst Chris Senyek Thursday.

"Even though we expect yesterday's tariff news to be only the opening salvo, with tariffs negotiated lower from here, damage has been done," he wrote. "Stay defensive."

Indeed, tweaking stock holdings -- instead of moving money out of the market, will position investors to profit once the tariff dust settles -- or the Trump administration relents.

Senyek predicts clarity could arrive as soon late May or early June, after the Fed has had time to react and investors turn their attention to potential tax cuts.

"For those uber bears, we'd counter with the administration can ill afford a recession," he adds.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 03, 2025 16:41 ET (20:41 GMT)

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