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Investors are expressing their discontent regarding President Donald Trump’s recent tariff policy.
The S&P 500 experienced a sharp downturn on Thursday and Friday following the President’s declaration of a 10% baseline tariff on all trading partners, along with duties as high as 50% on countries with which the U.S. maintains a trade deficit.
As trading resumed on Monday morning, the index dropped an additional 4% in early sessions, bringing it close to bear market territory, characterized by a 20% decline from its recent highs. By early afternoon on Monday, the S&P 500 had decreased nearly 19% from its peak in February.
Concerns among investors are mounting about potential worsening conditions. Countries such as China are already enacting retaliatory tariffs, indicating that Trump’s announcement may mark the start of a trade war that could hamper the global economy significantly. Domestically, there are worries that these extensive tariffs might reignite inflation and strain U.S. consumers.
Market analysts further point out that current U.S. tariff levels are poised to surpass those established by the Smoot-Hawley Tariff Act of 1930, a policy frequently associated with the onset of the Great Depression.
Experiencing economic turmoil can feel overwhelming, but it can be beneficial to maintain perspective. Historical data charting the performance of the U.S. stock market illustrates the five worst bear markets since 1928, including the Great Depression, which saw stock values plummet by 83%.
The farther back one looks, the less severe prior bear markets appear. The Great Depression, in particular, has almost faded into insignificance within the historical growth of the stock market.
Market history suggests that downturns can provide advantageous buying opportunities, provided investors have the means to continue investing regularly.
“Everyone is searching for an entry point. Those entry points present themselves when asset values have declined by 20%,” explains Scott Helfstein, head of investment strategy at Global X. “That’s your chance to acquire assets at discounted prices.”
Historically, down markets are transient
Professionals in the investment field, including Helfstein, recognize that purchasing assets during down markets can feel unappealing. Committing substantial capital to an investment that may continue to decline creates emotional discomfort.
“From a psychological standpoint, it’s very challenging for individuals to invest during losses,” Helfstein observes. “They may reconsider any available funds, questioning why they would risk an additional decline.”
However, historical patterns indicate that markets typically recover and achieve new highs, often more rapidly than anticipated.
Between December 1945 and March of this year, the S&P 500 encountered corrections — declines ranging from 10% to 19.9% — on 24 occasions, with an average downturn of 14%, as reported by CFRA, an investment research firm. Historically, after reaching the lowest point, it has taken an average of four months for the index to return to its break-even level.
During 14 bear market instances in the same timeframe, the average decline lasted about 13 months before the market exhibited signs of recovery. Following these downturns, new peaks were typically recorded in an average of 23 months.
According to historical data, investors might face a challenging period lasting several years. This scenario is particularly concerning for those depending on their stock portfolios for short-term financial goals, such as home purchases or imminent retirements.
Conversely, for younger investors with long-term aspirations like retirement years away, a few down years can represent relatively minor setbacks. Investing consistently during market downturns helps lower the average cost of investments, ultimately enhancing long-term returns.
Experts suggest that by the time individuals reach retirement, the most challenging market conditions they faced will likely be viewed as short-term fluctuations, similar to those depicted in historical graphs.
“If your investment horizon is long, these downturns should certainly be seen as buying opportunities,” Helfstein advises.
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