Anxiety has been building over the last several weeks about what the Trump tariffs would look like. The S&P 500 peaked on February 19 and experienced a 10% correction by March 13 as this uncertainty mounted. The stock market reflected a lot of bad news leading up to “Liberation Day” on April 2, the day Trump would unveil his proposed tariffs. Unfortunately, the tariffs that were announced were far worse than even the most pessimistic investors were expecting. When reality is better than expectations, the market goes up. When reality is worse than expectations, the market goes down. In the case of the tariff announcements, the reality was worse than expectations and stocks sold off violently, bonds rallied, and volatility and fear spiked. Stocks experienced their worst single day since March of 2020 during the COVID crisis.
Here is a look at how some broad measures of the market reacted to the tariff announcement.
| Index | 3-Apr-25 |
| S&P 500 | -4.83% |
| S&P 500 Equal Weight | -4.79% |
| Russell 2000 | -6.59% |
| Russell 1000 Growth | -5.67% |
| Russell 1000 Value | -4.19% |
| MSCI ACWI ex U.S. | -0.64% |
| CBOE Volatility Index | 30.02 |
| Bloomberg U.S. Aggregate Bond | 0.58% |
| Bloomberg U.S. Corporate High Yield Bond | -0.94% |
| Bloomberg Corporate | 0.21% |
| Bloomberg U.S. Municipal Index | 0.60% |
| Bloomberg U.S. Treasury Index | 0.69% |
Let’s dive into the details. President Trump had been warning that the United States would enact reciprocal tariffs on the countries with whom we trade. What was announced appears far worse. A broad, across-the-board tariff of 10% was announced for nearly all imports. Additionally, countries with the largest trade surpluses with the U.S., or otherwise deemed to have been treating the U.S. unfairly, were slapped with far larger tariffs. Below is a table reflecting some of the more punitive tariffs being imposed.
The fear is these tariffs will push the cost of goods up dramatically. Companies will either pass these higher costs along to consumers in the form of higher prices, absorb the higher costs (which would reduce profit margins), or some combination of both. These scenarios would lead to slower profit growth and potentially a recession if demand is impacted enough by higher prices.
So why is our headline “Stay the Course?” Simplistically, the markets reflect known and widely available information. The bad news is out, and stock prices are reflecting that bad news. While higher tariff rates were announced on April 2, they are not going to be implemented until April 9. We believe there is a significant possibility that better tariffs will be negotiated over that time and the market will rally to reflect a better reality than feared. For example, President Trump signaled openness to negotiation and acknowledged the possibility of striking deals if countries “offer something phenomenal.” The mention of flexibility from the administration late yesterday suggests that the tariffs may be tactical rather than a permanent fixture. Time will tell whether the tariffs are a means to an end to force negotiation on trade terms globally.
Historically, panic selling has often provided good entry points for investors with a long time horizon. The American Association of Individual Investors (AAII) sentiment poll shows that 61.9% of investors are bearish. That is the third highest level on record. The only higher readings were during the Global Financial Crisis on March 5, 2009, and during the 1990 recession and bear market on October 18, 1990. In both of those prior cases the market bottomed within a week of the extreme bearish sentiment.
There will be winners and losers from these tariffs, and consequently not all companies and their respective stocks will behave the same way. For example, the tariffs currently in place only apply to goods, not services. Additionally, many foreign companies manufacture goods in the U.S. and therefore would not be subject to the tariffs. This is complex and highlights that this is a market of stocks and not just a stock market. This is where active management comes into play — to identify high-quality, anti-fragile companies that will navigate through the current environment. This is what Clark Capital strives to do all day, every day. We believe it is imperative for investors to stay focused on their long-term goals and not let short-term swings in the market derail them from achieving their long-term objectives. Remember the mantra “buy low, sell high.” Unfortunately, too many investors do the opposite – selling because prices went down. That is pure emotion and will likely lead to bad outcomes.
For more information on the tariffs, see our latest Office Hours.
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