Just weeks after hitting a record high, stocks spiraled dangerously close to a bear market in early April, then snapped like a bungee cord as the Trump administration’s on-again, off-again tariffs whipsawed investors.
From its peak on February 19, the S&P 500 Index fell to within 1.1 percentage points of bear-market territory, defined as a drop of 20% or more, as Trump’s tariff war escalated. More than $5 trillion in market value was erased in just a few days.
Then, a reprieve. The White House announced a 90-day delay in the implementation of the most onerous levies on most of the countries facing them, and the broad market benchmark jumped nearly 10% in a single afternoon to close at 5,457 on April 9 – the biggest one-day gain since 2008. The next day? Down again.
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Tariffs that took effect briefly in April were two-part: 10% on all imports, and so-called reciprocal tariffs for nearly 60 countries, ranging from 11% to 50% and more.
Although the 10% baseline tariffs remain, most of those reciprocal tariffs are paused – and the 145% levy on Chinese good and China’s 84% retaliatory tariff on U.S. products were lowered for the time being in May.
Mexico and Canada are separate, operating under 25% tariffs that exclude goods compliant with earlier agreements (with some exceptions).
Expect a volatile market – with significant shifts up or down – to continue to react to the trade news of the day.
The stakes couldn’t be higher. “The expected fallout from Trump 2.0’s Reign of Tariffs undercuts our former bullishness,” said strategist Ed Yardeni, of Yardeni Research, in an earlier note to clients. “It has also drained confidence in the U.S. economy on the parts of everyone from CEOs to consumers to investors.”
Because consumers often bear the brunt of higher tariff costs, Moody’s Chief Economist Mark Zandi calculates that if all the proposed increases were to be implemented, the average American household would have to spend $2,100 more per year to buy the same goods they’re buying now.
What’s next for stocks?
Where the market goes from here depends on how the new global trade war plays out, how resilient the economy remains and how the Federal Reserve reacts – or doesn’t.
Most experts don’t believe the full panoply of tariffs will be reinstated – but the timetable for those decisions and the magnitude of tariffs that remain matter. Zandi expects the administration to backtrack on many of the tariffs as deals are negotiated.
“Whether we suffer a recession depends on which tariffs the president implements and for how long,” he says. “I would put the odds of a recession starting this year at 60%, and they are rising.”
For an idea of how central the tariffs are to the economic outlook, consider that on April 9, prior to the announcement of the tariff delay, Goldman Sachs economists sent a note out to clients stating that a recession within the next 12 months was their “baseline” forecast, with a 65% probability.
A second note was sent out less than two hours later that said they were reverting, post-announcement, to their previous forecast of anemic, but still positive, economic growth of 0.5% for 2025.
Meanwhile, Fed Chair Jerome Powell, at a recent conference for business journalists, acknowledged that the impacts of the higher-than-expected tariffs would likely be higher inflation and slower growth.
That’s a quandary for the central bank, as it fights inflation with higher rates but battles slower growth with lower ones.
“It’s not clear at this time what the appropriate path for monetary policy will be, and we’re going to need to wait and see how this plays out before we can start to make those adjustments,” Powell said.
Traders were recently expecting three quarter-point rate cuts this year, according to CME FedWatch.
A bleaker outlook
Although many experts expect a choppy market to resume its upward trend later in the year, a flurry of cuts to year-end S&P 500 price targets on Wall Street have unnerved investors.
UBS Global Wealth Management cut its 2025 year-end S&P 500 price target to 5,800 from 6,400 – forecasting an essentially flat year for stocks compared with 2024.
David Lefkowitz, head of U.S. equities at the firm, sees “no growth” in profits for S&P 500 companies this year. UBS also lowered its rating on U.S. stocks from “attractive” to “neutral,” although Lefkowitz says the likelihood of tariffs falling over the course of the year “should help lift stocks by year-end.”
RBC Capital Markets lowered its year-end S&P 500 price target to 5,550 from 6,200, the second cut this year.
“With this move, our old bear case becomes our new base case,” says Lori Calvasina, head of U.S. equity strategy research.
Corrections and bear markets are a fact of investing life. Since 1945, there have been 24 corrections and 14 bears, the market declining an average 14% and 32%, respectively, according to CFRA Research.
It has taken an average of four months to recover from a correction and 23 months to recover from a bear market.
Bear markets accompanied by recessions are typically deeper and last longer than average.
We’ll note that the market was weakening even before the tariff bomb dropped. Doubts had surfaced about the ultimate profitability of the artificial intelligence (AI) boom, and stocks’ sky-high valuations were worrisome.
Investment firm Leuthold Group cut its net exposure to stocks to 50% in March amid signs of weakness “that could have been pulled from an analyst’s handbook of bull-market tops,” says chief investment officer Doug Ramsey.
What should investors do now?
Don’t let your emotions get the best of you, whether the market is tanking or exploding upward.
Defensive groups such as consumer staples and utility stocks tend to hold up in volatile markets; many sport robust dividends to cushion losses, as well as plump returns.
Analysts at BofA Global Research prefer to play defense with value-priced large-company stocks. Ease of trading, a domestic focus, dividends, stability and inflation protection are paramount, says strategist Savita Subramanian. “Large-cap value ticks all the boxes.”
Bargain hunters might consider increasing exposure to large and mid-size U.S. stocks in the energy, tech, financial and communications services sectors, say strategists at Wells Fargo Investment Institute.
This is not the time to break your good investing habits. Investors with longer time horizons should keep contributing regularly to their retirement and other accounts.
Rebalance your portfolio if holdings have gotten out of whack with your target allocations to ensure that you don’t risk too much in some parts of the market and miss the bargains in other parts.
And stay diversified – an investing tenet that has paid off in 2025, with international stocks, bonds and gold, for instance, outshining U.S. stocks.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
