Tariff-Driven Rally May Be Topping Out—Time to Take Profits or Go Short?
Markets have surged in recent months on the back of easing tariff tensions—but that rally may be running out of steam. For active traders and tactical investors, this could be a prime opportunity to lock in gains or consider short positions on stocks that have risen too far, too fast.
The Rally’s Roots: Tariff Reversal and Economic Optimism
Since President Donald Trump softened his stance on key tariffs back on April 8—dubbed “Liberation Day” by traders—the S&P 500 has surged over 25%, buoyed by relief that escalating trade wars would no longer derail the U.S. economy. With tariffs temporarily sidelined, investors shifted focus to fundamentals: tax reform, deregulation, and a streak of strong earnings.
But the relief may be short-lived.
Tariff Risk Returns—and So Does Market Volatility
Trump’s latest tariff threat, slated to take effect August 1, is sparking fresh uncertainty. The Bloomberg Trade Policy Certainty Index spiked to 5.8, the highest since late April. It’s not a panic level (Liberation Day hit over 9), but it’s enough to put markets on edge.
With this backdrop, many traders are asking: Is it time to take profits—or even go short?
Shorting in a Volatile Market: Not for the Faint of Heart
Shorting stocks—betting that a price will fall—is inherently risky. Losses can be unlimited if the stock rises, and borrowing shares comes at a cost. But when a rally appears overstretched, short selling can provide strategic returns.
Wall Street is already flagging potential downside candidates:
Stocks Flashing Red: Names on Multiple Short Lists
Analysts from Wolfe Research, Evercore ISI, and J.P. Morgan have all identified stocks with weak fundamentals, inflated valuations, and bearish sentiment heading into earnings season. Here are 19 names that appeared on at least two “short” lists:
-
Las Vegas Sands (LVS)
-
Texas Pacific Land (TPL)
-
DraftKings (DKNG)
-
Albemarle (ALB)
-
MicroStrategy (MSTR)
-
Tesla (TSLA)
-
Choice Hotels International (CHH)
Key Cases to Watch
Tesla (TSLA)
Tesla’s earnings report on July 23 could be a pivotal moment. Analysts have slashed Q2 expectations by 53%, citing weak EV demand and sliding deliveries. While that lowers the bar, Tesla has missed earnings in six of the last eight quarters and trades at a lofty 132x forward earnings, far above its five-year average.
Choice Hotels (CHH)
This lesser-known name is trading at 18x forward earnings, nearly the same as Wyndham Hotels (WH)—despite projecting slower long-term growth. CHH has a poor track record on earnings surprises, with just two beats in eight quarters, making it vulnerable heading into its next report.
Final Thought: Know When to Walk Away
With tariff uncertainty rising again and several momentum names reaching unsustainable valuations, now may be the time to take profits, reduce exposure, or selectively go short.
Shorting isn’t for everyone, but the most lucrative opportunities often emerge when the crowd is complacent. As always, manage your risk, follow your plan, and trade what’s in front of you.
—
📉 Want real-time analysis and daily trading setups?
Join us in the War Room → TraderInsight.com/live-stream
📰 Catch the daily market recap
Visit: TraderInsight.com/war-room-trading-recap