The announcement of new tariffs set to begin on February 1 has cast a shadow over the US equity markets, leading to a broad risk-off sentiment among investors. The S&P 500 has seen a weakening in breadth, with most sectors experiencing declines, particularly the energy sector, which is heavily reliant on global trade. The imposition of tariffs has heightened concerns about potential earnings declines due to increased costs, prompting investors to adopt a more cautious stance. This environment has seen value stocks underperform growth stocks, as the latter are perceived to have better long-term prospects despite short-term volatility. Additionally, small-cap stocks are lagging behind their large-cap counterparts, as smaller companies often have less diversified revenue streams and are more susceptible to cost pressures from tariffs.
The market's fear premium has increased, as evidenced by a rise in the VIX and implied volatility, indicating a greater demand for protection against downside risk. The uptick in put selling further underscores investors' desire to hedge against potential further declines. As traders reduce their exposure to equities ahead of the weekend, concerns about potential retaliatory actions and geopolitical risks continue to weigh on market sentiment.
The S&P 500 Index is currently at 6,040.32 as of 16:02 on January 31, down from its last close of 6,071.17. The index opened at 6,096.79, reaching an intraday high of 6,120.91 before retreating amid the broader market sell-off.