EXCLUSIVE: Traders May Be Getting The Tariff Playbook All Wrong, Here's Why

Traders are piling into recession hedges as tariff threats resurface, but they may be following the wrong signals.

According to Jake Behan, Head of Capital Markets at Direxion, the connection between tariffs, inflation, and recession isn't as direct as many assume.

"Traders may be overreacting and exaggerating the link between tariffs, inflation, and recession timing," said Behan in an exclusive interview with Benzinga.

Inflation's Been Brewing – Tariffs Are Just The Headline

The tariff narrative has re-entered center stage, but the inflation story predates it. That's why some macro-focused investors may be cautious in attributing too much market movement to new trade threats.

"While there is no doubt that the three impact each other, the risk of inflation has been looming for much longer," Behan said.

The challenge for active traders is separating noise from signal. The current landscape features erratic tariff implementation, making it hard to precisely time any recession-linked drawdown.

For traders with a bearish tilt on sectors vulnerable to tariff whiplash—such as semiconductors—targeted tools like the Direxion Daily Semiconductor Bear 3X Shares ETF SOXS can offer a way to express conviction on near-term downside without waiting for confirmation from lagging indicators.

Sentiment Is Right, Strategy May Be Off

Despite the confusion, Behan acknowledges traders are directionally aligned with macro risks.

"Traders have the proper sentiment in recognizing the risk of a recession and the global supply chain risks that come along with tariffs," said Behan.

Small caps, often exposed to global supply chains and tighter margins, may also be vulnerable in a tariff-fueled slowdown. Tactical traders looking to lean into that risk might explore inverse exposure through the Direxion Daily Small Cap Bear 3X Shares ETF TZA.

Still, strategy matters.

Overreacting to tariffs could leave investors positioned for a downturn that's driven by slower-moving forces like sticky inflation or weakening demand – rather than sudden policy shifts.

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