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The stock market had a couple very bad days to end last week. While the rationale for the downturn is unique, major events that create market fear are not unusual. The Dow Jones Industrial Average has been around for 129 years, through political upheaval, scandals, wars, runaway inflation, banking failures, depressions, pandemics and trade wars. Since its inception in 1896, there have been ~15 major stock market crashes and through it all the index has gone up ~1000-fold from ~40 to ~38,000.
Humanity is remarkably resilient. The stock market is resilient. The economy is resilient. We’ve described the global economy as “self-healing.” Countries, companies, and people react to economic wounds, treat injuries, adapt to the new reality, and find ways to grow and prosper. We’ll get through this. In this case, “this” is a possible trade war.
This past Wednesday, April 2nd, the President announced steep and sweeping tariffs on imported goods, which could increase the average annual expenses for U.S. households by thousands of dollars. If fully enacted, the tariff rate on all imports would be the highest since the Smoot-Hawley Tariff Act of 1930.
The magnitude of the tariffs was a surprise to investors. The stock market had its worst 2-day drop since the pandemic of 2020 and the 4th worst over the past 75 years, with the S&P 500 index down 5% on Thursday and another 6% Friday. The S&P 500 is now down more than 17% from recent highs, while the tech-heavy NASDAQ Composite and small-company Russell 2000 are both down more than 20% from recent highs.
So, Ouch.
Tariffs, like all sales taxes, are regressive in that lower-earning households feel the impact more than higher-earning households. The effect of the tariffs could also reverberate through the economy and create job losses, which are more likely to come in lower-earning households. From that perspective, higher-earning, stock-owning households, while likely to feel some pain, should be able to navigate through the tariffs comparatively well.
As you might remember from the movie Ferris Bueller’s Day Off, Smoot-Hawley didn’t end well, as it triggered a trade war that deepened the Great Depression. Reed Smoot and Willis Hawley were both voted out of office in 1932. Perhaps the political winds will sweep the current round of tariffs away quickly as well.
We can't predict the future. Nobody can. We don't recommend selling stocks because you think the market's going down further. If the tariffs remain intact and retaliatory tariffs intensity, it could certainly get worse before it gets better, but we don't know that. We also don't recommend buying stocks because you think the market's going back up quickly. My high school accounting teacher’s brother could successfully reassert Congressional control over tariffs or conservative think tanks could successfully persuade the administration that the tariff calculations were flawed. Whatever the impetus, the President could reverse course on tariffs. But we don't know that.
That’s not to pretend that it’s easy to stomach the ups and downs. For me, dealing with stock market volatility is a little like when I fly through a thunderstorm in an airplane. My lizard brain’s screaming "we're going to crash!" while my cerebral cortex is calmly whispering "don't worry, this is normal, it happens all the time, and we'll get through it." And we most certainly will as long we don't head for the airplane exits before we land.
You get returns on stock ownership because of the risk, not despite the risk. It’s the inherent and persistent uncertainty in the stock market that generates higher returns than more predictable investments like bonds. When you are most anxious and fearful about the future, that's exactly when you will benefit most from being steadfast.
As always, our primary advice during stock market turmoil is to breathe deeply, relax and do nothing. If you feel the need to do something, how about this for an idea: Buy less stuff. Don’t even wait for the tariffs to show up in prices. Just start scaling back purchases. Disable 1-Click ordering on Amazon. The Google AI summary for “buy less stuff” is pretty good: “To buy less stuff, consider mindful curation, be aware of advertising, get to know your "true taste," avoid impulse buys, save for quality, and take care of your possessions.”
In times of uncertainty, control what you can control.