The market experienced a significant downturn on Thursday, April 3rd, following President Trump’s announcement of sweeping new tariffs. Already down 8 percent[1] from its all-time high in February due to concerns over slowing US growth, geopolitical uncertainty, and labor market instability, the market reacted sharply to the harsher-than-expected tariffs. Investors are grappling with the immediate and long-term implications of these policies, leading to heightened volatility across global financial markets.

What happened with Tariffs?

Shortly after market close on Wednesday, President Trump announced a global 10 percent tariff on all US imports. Additionally, reciprocal tariffs will be imposed on a country-by-country basis, calculated at half the rate of tariffs and non-tariff barriers those countries place on US goods. These include a 64 percent tariff on Chinese imports, 20 percent on European Union goods, and 24 percent on Japanese imports.[2]

The White House stated that these measures aim to protect American industry, bring manufacturing jobs back to the US, and generate revenue. The administration emphasized that while the US has maintained an open trade stance, its partners have imposed disproportionately high tariffs and other trade barriers, contributing to persistent trade deficits. The executive order asserts that “permitting these asymmetries to continue is not sustainable in today’s economic and geopolitical environment because of the effect they have on US domestic production. A nation’s ability to produce domestically is the bedrock of its national and economic security.”[3]

While the administration believes these measures will benefit the US in the long term, many economists caution that the immediate effects could be negative. Increased import costs are expected to drive inflation higher, limiting the Federal Reserve’s ability to cut interest rates. Elevated prices and borrowing costs may also lead businesses to scale back investment, creating further economic uncertainty and tighter financial conditions. Consumer spending had already slowed in early 2025, and these new tariffs could exacerbate that trend, leading to weaker economic growth in the near term. Additionally, global trading partners have hinted at potential retaliatory measures, which could further strain international trade relationships and impact US exporters.

Market Implications

The long-term impact of these tariffs on domestic manufacturing and job growth remains uncertain, but most experts anticipate a short-term economic slowdown due to rising costs for consumers and businesses. While historical precedents are limited, past market downturns offer some insight:

• During the first Trump administration, tariffs on China sparked a trade war that whipsawed the markets and dominated the news, much like now. The S&P 500 dropped nearly 20 percent in Q4 2018 but rebounded in 2019 with a 31 percent annual return.
• The 2020 COVID-19 recession saw the S&P 500 fall by over 21 percent from February to April, followed by a 55 percent rally over the next 12 months.
• The 2007-2008 financial crisis led to a 43 percent market drop, but the subsequent 12 months saw a recovery exceeding 70 percent.[4]

There will always be uncertainty for investors. Market recoveries often occur suddenly and unpredictably, with the best days in the market frequently following periods of sharp declines. That makes it important to take a long-term view of an investor’s investments and review them regularly to make sure they line up with your time horizon, risk tolerance, and financial situation. Attempts to time the market can result in missing critical recovery days. While short-term volatility is unpredictable, historical trends show that equity markets tend to recover and grow over the long run. A disciplined approach to investing is key to weathering economic turbulence.

The Role of Diversification

Diversification can greatly reduce the impact of market volatility. The S&P 500 serves as a benchmark for US large-cap stocks, but a well-diversified portfolio including bonds and international equities has historically mitigated losses during downturns. Fixed income assets, in particular, tend to move inversely to stocks, providing stability during market stress. Owning fixed income during the 2008 financial crisis, the trade wars of 2018, and the covid recession of 2020 would have dramatically reduced the losses that you experienced. While stocks were down in the high double-digits in each of those periods, bonds were positive in every one of them.[5]

Following the recent tariff announcement and market reaction, the S&P 500 is down 8.2 percent year-to-date.[6] However, bonds, international equities, and real estate investments have remained in positive territory. While alarming headlines may emphasize market declines, a properly diversified portfolio has experienced far fewer losses.

Final Thoughts

Periods of market volatility can be challenging, but they also present opportunities. Staying invested, maintaining discipline, and adhering to a well-diversified strategy have historically been the keys to long-term financial success. Rather than reacting to short-term market movements, the most successful investors stay focused on their ultimate financial goals.

Through PersonalSAGE, our financial coaches are committed to helping you navigate market cycles with confidence and clarity. If you have any questions about your investment strategy, please schedule a meeting with a financial coach. Together, we can ensure that your financial future remains on track—regardless of market conditions.

[1] Yahoo Finance. S&P 500 return from 2/19/2025 – 4/2/2025

[2] BCA Research

[3] Whitehouse.gov

[4] Morningstar Direct. S&P 500 total returns

[5] Morningstar Direct. Bloomberg US Agg Bond total returns

[6] Morningstar Direct. S&P 500 total returns