Tariff Truce Ending in 11 Days: Will the Stock Market Face a “Trump Dump”?

Are you ready for a rollercoaster ride in the stock market? Hold on tight because Wall Street is anything but predictable! Here’s a deep dive into what’s been shaking the markets and what might lie ahead.

Unpacking the Volatile Start to 2025

The year 2025 kicked off with record highs as the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all soared to unprecedented levels by mid-February. However, the thrill was short-lived. By April, the Dow and S&P 500 had plunged into correction territory, and the Nasdaq was grappling with a full-blown bear market. This dramatic turn was primarily triggered by significant moves in U.S. trade policy under President Donald Trump’s administration.

In early April, specifically after April 2, the stock market experienced extreme fluctuations. This was a direct result of President Trump announcing a new 10% global tariff on Liberation Day, coupled with increased reciprocal tariffs on countries with negative trade balances with the U.S. This bold move led to a sharp 10.5% drop in the S&P 500 over two days. However, in a surprising twist on April 9, President Trump paused these higher tariffs for 90 days for all countries except China, igniting the largest single-day point gains in the history of the Dow, S&P 500, and Nasdaq.

The Impending Deadline: A Cause for Concern?

With the 90-day tariff pause set to end in just 11 days, there’s mounting anxiety about potential negative impacts on the stock market. This looming deadline could reintroduce higher tariffs and possibly deteriorate trade relations further, not just economically but also politically. Historically, tariffs have strained relationships with key U.S. trade partners and even stoked anti-American sentiments.

Moreover, the distinction—or lack thereof—between input and output tariffs complicates matters. Input tariffs, which affect materials used for manufacturing within the U.S., could inflate domestic prices and squeeze corporate profits. This was evident from the prolonged negative effects on businesses directly hit by Trump’s China tariffs between 2018 and 2019, where a significant decline in profits, sales, employment, and labor productivity was recorded well beyond the initial announcements.

Deeper Issues at Play: It’s Not Just About Tariffs

While tariffs are a hot topic, they might not be the gravest threat to Wall Street. The valuation of stocks when President Trump assumed office for his non-consecutive second term was near historical highs. The S&P 500’s Shiller P/E ratio, a measure adjusted for economic cycles, was alarmingly high, indicating that stocks were considerably overpriced. Such high valuations have historically led to significant market corrections, suggesting that even if the tariff issues are resolved, the stock market might still face downward pressure due to its inflated valuations.

The Silver Lining: Historical Resilience of Stock Markets

Despite the immediate challenges, history teaches us that stock markets have an incredible capacity for recovery. Market corrections, bear markets, and crashes, while daunting, are usually short-lived. The overall trend has favored long-term investors. For instance, a recent analysis by Bespoke Investment Group highlighted that since the Great Depression, bear markets have averaged about 9.5 months, while bull markets have typically lasted almost three years. This pattern underscores the potential benefits of maintaining a long-term investment strategy through market turbulence.

The current market scenario, with its mix of high stock valuations, geopolitical tensions, and tariff uncertainties, indeed poses challenges. However, the historical data suggests that patience and a long-term outlook could still be rewarding for investors. As we navigate through these turbulent times, keeping an eye on both immediate triggers and historical trends can provide valuable insights into managing investments effectively.

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Glen Rodrick

Glen Rodrick is a business journalist specializing in companies, financial markets, and consumer trends. He offers practical insights to help readers stay informed on economic shifts.