The Best Sector to Trade the “Tariff Tantrum”

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

Tariff drama sends markets into turmoil
A new tool for navigating this kind of volatility (free access for two more days)
Why utilities are a great trade right now
Make sure you’re signed up for Wednesday’s AI trading event

Tariff turmoil is back…

Last Thursday, the Chinese government announced new curbs on exports of rare earth elements (REEs).

These resources are critical to everything from 3D printers to electric motors, medical imaging, wind turbines, nuclear reactors, guided missile systems, and laser-based weapons.

China has a near lock on mining and processing these critical elements. It’s a stranglehold on the development of the next-gen technologies powering this bull market.

And in a bid to stop rivals from mining their own supply, Beijing also said it was adding dozens of pieces of REE processing equipment to an export control list.

REEs have been a major sticking point of this year’s trade war, with the U.S. hoping to secure a reliable supply of these metals.

So on Friday, President Trump hit back by saying he no longer saw any reason to meet with Chinese leader Xi Jinping at an economic summit in South Korea on Oct. 31. He also announced an extra 100% tariff on Chinese imports starting Nov. 1.

Investors didn’t take the news well.

The S&P 500 plunged 2.7%. And the tech-heavy Nasdaq 100 plummeted 3.5% – the worst slide since the depths of the Liberation Day crash on April 10.

Over the weekend, Trump softened his stance, inviting Beijing to consider reversing its rare earth metals export restrictions.

If China accepts Trump’s olive branch, this could blow over fast. But given the fresh scars investors bear from the last bout of tariff drama in April, we could be in for a volatile week.

But since you’re reading TradeSmith Daily, you don’t need to sweat what may or may not happen in the trade war.

You have our hedge fund-level tools in your corner.

Today we’ll use them to find a great trade to make, no matter what happens with tariffs…

And I’ll make sure you’re prepared to use one of our most powerful tools for free ahead of Wednesday’s big AI trading event.

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This “traffic light” system is your best friend in times like this…

Our Health indicator measures how “healthy” a stock or index is based on its historic volatility.

Is it moving along within its normal volatility range? Or is it exceeding that range and showing signs of trouble?

It’s based on a simple traffic-light system:

Green – The stock or index is in a healthy uptrend.

Yellow – The stock or index has gone through a bout of unusually high volatility. Caution is recommended because it’s halfway to our TradeSmith stop.

Red – The stock has broken its uptrend, and it’s time to get out.

If you sync your brokerage account with our analysis platform, TradeSmith Finance, you can see the Health status of any stocks you own.

And we recently launched a new version of Health that’s more attuned to short-term trading.

We ran this indicator on S&P 500 stocks going back 15 years. And we found that stocks entering their Short-Term Health Green Zone make for great trades.

When a stock is in short-term Green Zone, its average annualized return is 23.4%.
In the Yellow Zone, the average annualized return is 1.2%.
When the stock is in the Red Zone, it has an average annualized loss of 2.5%.

With both these indicators, we can find great short-term opportunities in sectors in strong long-term trends.

As you can see below, Utilities has the best long-term health. More than 90% of the stocks in that sector are in the Green Zone, and it has the fewest Red Zone stocks of any sector. And on both measures, it’s hardly even close.

With utilities stocks stronger than any other by far, we should check which of them have the strongest short-term health. Here are the five that most recently entered the Short-Term Green Zone:

Topping this list is California utility company PG&E (PCG). It entered a new Short-Term Health Green Zone just two days ago.

We can even layer in Seasonality trends to further confirm this as a good setup.

By studying how stocks have tended to move throughout the year, we can lock in the best seasonal patterns in specific sectors (and even individual stocks) at certain times.

Our system shows that the Select Sector Utilities ETF (XLU) has been up between Oct. 6 and Oct. 31 in 14 of the last 15 years:

Utilities are also backed by the highest number of long-term healthy stocks of any sector. And now we see they have a strong seasonal tailwind.

So if you’re looking for a trade setup to kick off the week, this is a great place to start.

Plus, we can get an even better sense of where to look for winning trades with our other landmark TradeSmith innovation.

That’s thanks to our Predictive Alpha AI algorithm…

When we launched Predictive Alpha in 2023, it was the biggest step forward in TradeSmith’s 20-year history.

You’re probably familiar with ChatGPT, Gemini, and Copilot. They’re called large language models because they’re trained on massive datasets of words.

Think of our AI-powered trading system as a large numbers model.

Like ChatGPT, it’s a neural network. But instead of datasets of words, we trained it on more than 100 billion market data points – including odd jumps and volatility spikes.

It learns patterns hidden in the noise, then projects where stocks are likely to move next.

You may be wondering how accurate these projections are. We monitor it daily and see surprisingly consistent results.

For some stocks, the price hits its projection more than 90% of the time. That includes more than 700,000 projections a month since we introduced the model in 2023.

And we consistently see 70% accuracy or higher.

Since we launched, we’ve improved and refined the Predictive Alpha algorithm. And now with our Prime Prediction tool, you can know with precision which trades are most worth taking.

Let me show you what I mean. The screener below searches our database for Predictive Alpha Prime forecasts ending in the next 21 days, with Historical Target Accuracy of 75% or higher, for stocks in the S&P 500, Dow, and Nasdaq 100.

The two trades with forecasts ending soonest are:

Lam Research (LRCX), expected to move 6% higher by Oct. 21. Historically, it’s reached that pattern’s target 81% of the time.
Robinhood Markets (HOOD), which is expected to rise 6.6% by Oct. 21 with a historical accuracy of 75%.

Let’s zoom in on HOOD, which has been on a tear in 2025, up 252%.

Predictive Alpha Prime sees 6.6% upside over the next 12 days:

HOOD got beat up last Friday, with the stock almost 9% in a single session. Based on this projection, that selloff is likely to provide rocket fuel.

But you know what’s even better than one AI-powered trade?

A constantly rotating portfolio of these trades.

Here at TradeSmith, we’re on an unending mission to improve and refine our technology.

Predictive Alpha’s launch in 2023 was like Neil Armstrong peeking outside the Apollo 11 capsule.

The launch of Prime earlier this year was the “small step.”

And the AI Super Portfolio debuting this week is the “giant leap” that we’ve been excited about for months.

Rather than a tool that surfaces AI-powered trade plans, the AI Super Portfolio is a rotating 5-stock strategy that selects for some of the best Predictive Alpha Prime forecasts.

You hold each stock for the length of its forecast period and sell at the end of the period.
Then, you swap in a new Prime stock with a strong history of hitting its profit target.

And by "the best forecasts," I mean ones that combined to a 374% annualized return in our backtest.

That’s an average, mind you. In the past couple of years, it would’ve done far better:

Click here to be on hand for our live demo and get Prime forecasts on your stocks in the meantime – completely free.

The Best Sector to Trade the “Tariff Tantrum”