US stock earnings season under the shadow of tariffs: Options market betting on individual stock volatility skyrocketing, medical stocks may become the "eye of the storm"

The impact of tariffs that are about to be imposed will be a focus in the upcoming second financial quarter, prompting investors to prepare for bigger fluctuations. The options market shows that compared to the last few quarters, the daily volatility of S&P 500 index component companies on earnings days will be larger. Among them, the healthcare sector has the highest possibility of significant fluctuations. Trade tensions have escalated again, with U.S. President Trump threatening to increase tariffs on numerous trading partners - including imposing a 50% tariff on Brazil and a 30% tariff on the European Union - and declaring that he will not extend the deadline of August 1. Given the dramatic events in recent months regarding tariffs, this new uncertainty may continue to hinder some companies' ability to provide forward-looking guidance. These options indicate that compared to recent quarters, there will be an increase in the daily volatility of S&P 500 index component companies on earnings days, but not to the extent seen in April, when the trade dispute led to market turmoil. In the first quarter earnings season, mentions of tariffs were frequent, but many companies did not quantify the extent of the impact or adjust expectations. Investors are now expecting more definitive information - however, according to Goldman Sachs strategists, 73% of S&P 500 index component companies will announce earnings before the deadline for reaching an agreement with the United States, so the situation may still be unclear. UBS Group's stock derivative strategist Kieran Diamond said, "The options market expects that the stock price reaction after the release of second quarter earnings of companies will be more dramatic, especially those in the consumer and healthcare sectors. This is consistent with the trend observed in recent years, where stock price volatility on earnings days in the United States and Europe has been increasing." The healthcare industry stands out in terms of volatility, with its expected volatility significantly higher than in previous earnings seasons. The industry faces high tariff threats, and the recently passed tax reform and spending bill in the U.S. have also cut funding for healthcare programs. Analysts have significantly lowered expectations for the European region ahead of earnings season, while expectations for the United States are also conservative. A derivatives strategist at BNP Paribas last week pointed out in a report that positions in Europe are relatively light, and Germany's fiscal statement has brought upward risks to optimistic economic growth expectations. In the United States, Deutsche Bank strategists noted that the current market position is slightly below neutral, which favors the market to rise again. They emphasized a long-standing phenomenon that during earnings season, stocks usually rise in about three-quarters of the time, with an average increase of 2%. This week, banks and other financial institutions dominate the earnings releases in the United States. Among these large companies that will announce earnings, many have shown volatility levels that exceed the average volatility seen in the past two years after their earnings releases. As the overall market trend continues to rise and the volatility of indices (including implied and actual volatility) has been declining recently, the volatility of individual stocks remains stable. Traders are now looking forward to greater individual stock volatility during earnings season. Last week, the ratio of the S&P 500 stock volatility index at the Chicago options exchange to the VIX index reached its highest level since February. Goldman Sachs expects an increase in volatility on earnings days this quarter, as most key market discussions revolve around specific themes - tariffs, artificial intelligence, interest rates, government policies, etc. - and are likely to result in winners and losers rather than a comprehensive rise or fall. The volatility on the latest earnings days is expected to be 3.5 times higher than on non-earnings days, compared to a ratio of 2.5 times in the previous period. John Marshall, head of the derivatives research department at Goldman Sachs, wrote in a report, "Before earnings are released, we still find buying options strategies attractive; but during earnings releases, selling options strategies are more favorable."