We know recent headlines and the significant market drop may feel unsettling, and it's understandable to wonder if this time truly is different. In moments like these, Sir John Templeton's famous insight becomes particularly valuable: “The four most dangerous words in investing are: ‘This time it’s different.’”
Since President Trump's election, markets have experienced ongoing volatility due to uncertainty about potential policies, particularly tariffs. These tariff concerns have continued to influence investor sentiment and contributed to the stock market decline.
Here's what you should keep in mind:
Tariffs Explained Simply:
Tariffs are essentially taxes on imported goods. They aim to encourage domestic manufacturing and help manage the trade deficit. While well-intended, tariffs also can mean higher costs for companies importing materials or goods from abroad.
What's the Real Impact?
Some industries, like manufacturing, may face higher costs, which could impact profits. Other sectors, like healthcare and utilities, are less affected due to their largely domestic operations. In the end, it comes down to the economy. Yes, things have slowed down in the first quarter, but we still don’t see any signs a recession is imminent. Household balance sheets are still very solid; the labor market is slowing but not cracking; and corporate America’s balance sheets remain healthy as well. Earnings season kicks off in two weeks, and this could be a big driver for better stock market returns, as we’ll get clues as to the state of the consumer and the overall state of the economy. Times are trying and headlines are scary, but there are still reasons to remain optimistic over any typical investment horizon.
What Does This Mean for You?
Short-term volatility is normal in financial markets. The S&P 500, an index of the largest stocks in the U.S., has gained about 10.5% annually since its inception in 1957.1 This covers almost a 70-year period of wars, recessions, political upheavals, "irrational exuberance," and boom/bust cycles. Investors who maintained discipline and remained in the market over the long term have been rewarded.
Stocks are measured by the Standard & Poor's 500 (S&P 500) Composite Index, which is an unmanaged index considered to be representative of the overall U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Individuals cannot invest directly in an index. The returns and principal values of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.
The S&P 500 index was introduced in March 1957, when it was expanded from 90 companies to 500 and renamed the S&P 500 Stock Composite Index.
Sources:
1. Business Insider.com, January 2, 2025
https://www.businessinsider.com/personal-finance/investing/average-stock-market-return
2. https://www.empower.com/the-currency/money/q2-market-outlook-2025-march-31-tariffs-video
Empower Q2 2025 Market Outlook - Research Spotlight - The Tariff Pinch - Estimating the Impact on Earnings