Here’s what investors are eyeing amid market fluctuations due to Donald Trump’s trade policies

With Donald Trump’s tariffs on imports from China, Canada, Mexico, and potentially Europe, investors are closely watching how these trade policies will impact the broader stock market.

The 20% to 25% tariffs have triggered retaliatory actions from affected nations, increasing economic uncertainty.

The Tax Foundation estimates that these measures could push the average U.S. import tax to 13.8%—its highest level since 1939, as mentioned in a report by USA Today.


As a result, major stock indices have taken a hit, with the S&P 500 declining by 6% and the Nasdaq Composite dropping 9%.

Amid these fluctuations, investors are exploring defensive sectors that could offer stability, and utilities appear to be a promising option.

Why the Utilities Sector Stands Strong

Historically, utility stocks tend to perform well during periods of market uncertainty. Their low international exposure shields them from currency fluctuations and trade disruptions.

While sectors like technology and manufacturing face direct challenges from Trump’s trade war, utilities remain relatively insulated.

JPMorgan Chase analysts suggest that infrastructure expansion prompted in part by tariff-related shifts in domestic production could benefit industrial and utility stocks.

Additionally, a stronger US dollar resulting from reduced imports could further dampen inflation, potentially stabilizing interest rates.

Unlike export-heavy industries, utility companies derive almost all their revenue domestically, making them less vulnerable to global trade tensions.

In contrast, technology firms, which have over 50% international revenue exposure, could face substantial headwinds.

The Vanguard Utilities ETF: A Smart Investment Choice?

For investors looking to capitalize on the resilience of the utilities sector, the Vanguard Utilities ETF (NYSEMKT: VPU) presents an attractive opportunity.

This index fund includes 69 U.S. utility companies, with a strong focus on:

• Electric utilities (61%)
  
• Multi-utility companies (25%)
  
• Independent power producers (6%)
  
• Gas utilities (5%)
  
• Water utilities (3%)
  

Top Five Holdings in the Vanguard Utilities ETF:

1. NextEra Energy – 11.2%
   
2. Constellation Energy – 7.1%
   
3. Southern Company – 7.1%
   
4. Duke Energy – 6.6%
   
5. Vistra – 4.4%
   

Beyond tariffs, another factor driving the utilities sector is the surge in energy consumption, particularly due to the increasing demand for artificial intelligence (AI).

Goldman Sachs analysts predict that AI-driven data centers will significantly boost electricity demand through the decade, benefiting utility providers.

Is Now the Right Time to Invest?

The Vanguard Utilities ETF has delivered a 21% return over the past three years, underperforming the 40% growth of the S&P 500.

However, with tariffs disrupting other industries and AI-driven energy demand on the rise, utilities could be well-positioned to outperform in the coming years.

Additionally, utilities posted 16% earnings growth in the last quarter, with a sector-wide valuation of 20 times earnings, suggesting reasonable pricing.

The ETF’s expense ratio of 0.09% makes it a cost-effective choice for long-term investors.

FAQs

What is the 7% rule in stocks?

This guideline advises investors to sell a stock if its price declines by 7–8% from the optimal purchase point, helping to minimize potential losses.

What is 90% rule in trading?

The majority of traders struggle within their first three months, a phenomenon known as the 90-90-90 rule—90% of traders lose 90% of their capital within 90 days.