Progress with tariff negotiations has calmed institutional investors who have been slowly adding to their stock portfolios since the stock market bottomed on April 8. After Trump’s April 2 Rose Garden announcement of proposed new tariffs, the S&P 500 that was already down -3.58% for the year plummeted another -11.7% before it bottomed on April 8 for a year low of -15.28%. The tech sector did worse as the NASDAQ was down YTD -8.85% before the announcement and plummeted another -12.1% after the announcement to also bottom on April 8 for a year low of -20.94%. These are market closing data that don’t reflect even worse wild intra-day swings as investors were uber focused on news coming out of Washington.

Once Trump announced delays in implementing the new tariffs and additional news of tariff agreements, the markets quickly recovered from the huge declines. As of the closing on June 10, the major indices have fully recovered from their declines and now year to date the S&P 500 is up 2.11% and NASDAQ is up 1.45%.

Although investors and the media immediately panicked with worst case scenarios after Trump’s April 2 announcements, it shouldn’t be a surprise to anyone following Trump’s modus operandi that he has applied in many of his business dealings including during his first presidency. Regarding tariffs and the tremendous market volatility, the tactic appeared to work if the goal was to have 90+ nations agree to re-negotiate tariff taxes, open specific US industries for their imports, and expand foreign trade in the US. The US trade deficit has whipsawed dramatically over the past months as companies increased their purchases in advance of tariffs and then slowed the buying as inventories grew. The US trade gap narrowed significantly in April. Trading Economics summarized the April’s Bureau of Economic Activity Trading report:

• “The US trade gap narrowed sharply to $61.6 billion in April 2025, the lowest since September 2023, compared to a $138.3 billion gap in March. Imports shrank 16.3% to a six-month low of $351 billion, after jumping to an all-time high of $419.4 billion in March in anticipation of more tariff announcements. The biggest declines were seen in purchases for pharmaceutical preparations, finished metal shapes, passenger cars and cell phones and other household goods. Meanwhile, exports rose 3% to a record $289.4 billion, led by sales of finished metal shapes, nonmonetary gold and computers. The biggest trade deficit was recorded with China ($-19.7 billion), although it decreased sharply from a $24.2 billion gap in March. The shortfall with the EU also plunged to $17.9 billion from $48 billion while the deficit with Vietnam widened a bit ($14.5 billion vs $14 billion). The shortfalls with both Canada ($-2.6 billion vs $-4.9 billion) and Mexico ($-13.5 billion vs $-16.9 billion) also narrowed.”

Meanwhile, the immediate impact on the economy, jobs, and corporate growth was minimal if at all.  It remains to be seen if there is some bubble of disruption later this year in the world economy due to manufacturing and shipping being stalled for a few weeks.

The wild ride of investor trading reacting to President Trump’s announcements should be a learning experience for investors and how to navigate through the next wild ride.  Yes, there will be more wild rides. 

It is important to recognize that President Trump is not the only source to spook investors.  The totality of investors and behavior seems akin to large herds of cows, for the most part, cows are pretty content idly enjoying the day eating grass.  Until something triggers nearly the entire herd instantly into a panic stampede.  A great example is in the movie City Slickers when Mitch (Billy Crystal) early one morning, operates a battery-operated coffee grinder and the noise spooks the entire cattle herd sending them stampeding off. 

The challenge for investors is to determine if they should also run off with the herd to nowhere.  The issue is whether the volatility is the result of panic reactions to short-term resolvable conditions or indications of longer-term systemic problems that will erode current economic conditions. 

A good example of short-term investor panic for no reason occurred in the fall of 2018.  For most of the year, investors and the media like cows enjoying a warm summer day were quite satisfied with the economy and stock prices.  Through October 2 the S&P 500 was up 9.34% and NASDAQ was leading with a gain of 15.88%.  More importantly, the US Gross Domestic Product (GDP) increased at an annualized rate of 3%, corporate profits were near their highest level in eight years, and inflation and interest rates were stable. 

But then a comment by Jerome Powell, Federal Reserve Chairman, during a PBS interview with Judy Woodruff spooked the market like Mitch did in City Slickers. 

The Fed Chairman said,

• “The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They’re not appropriate anymore…Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral…We may go past neutral, but we’re a long way from neutral at this point, probably.”

Boom!  The next day investors panicked and the media rallied their bear market messaging machines surmising that the Federal Reserve will begin an aggressive interest rate hike that will sabotage the economy and drive it into a recession.  The major indices plummeted, and the panic gained speed resulting in the worst December selloff since 1930.  All the previous year’s gains were lost and the S&P 500 ended the year down -6.24% and NASDAQ down -3.88%.

However, in January investors’ panic subsided.  Like in herd mentality, after running for the exits for months they slowed down to think.  The Federal Reserve didn’t embark on an aggressive rate hike campaign and instead made four 0.25% rate increases bringing the Federal Discount rate up from 1.50% to 1.75% to 2.25% to 2.50%.  Most important the economy didn’t slide into a recession or even slow down.   CNBC provided this commentary on December 31, 2018:

• “Still, there’s reason for optimism [for 2019].  The economy remains strong, despite a Wall Street consensus that the pace of growth will slow. Unemployment is holding around a 50-year low and job growth continues apace, despite persistent conventional wisdom that there’s not much more room to expand and a worsening in labor conditions also could be in the cards.

• Corporate profits, after growing just north of 20 percent for 2018, probably will slow as well, though an earnings recession seems nearly as unlikely as a conventional economic one. FactSet estimates earnings will grow 8 percent for all of 2019, a substantial decline but still a move forward. Consumer and business sentiment has edged lower but is still well above the norm.”

The following year the major indices rallied as investors’ fears quickly turned into greed, taking advantage of depressed stock prices on companies with still strong earnings.  For the two years of 2018 and 2019, the previous losses were recovered and the cumulative two-year gain of the S&P 500 was up +20.84% and NASDAQ +29.97%.

What Does This Mean to Me?

As mentioned earlier, when investors panic especially the institutional investors that dominate market trading, it is important to evaluate the issues and the longer-term impact.  In 2020 with the worldwide viral infection and subsequent world stock market selloff, the US economy and stock market experienced severe but short-term volatility.  However, due to the strength of the US economy and more impressively the creative entrepreneurial adaptation by corporate businesspeople, the economy remained stable.  The major indices plummeted in February and March 2020 but quickly recovered all the decline by the end of July and then rallied for historic annual gains. The S&P 500 ended the year 2020 gaining 16.26% and NASDAQ soared 43.64%. 

We, along with a few other investors, saw the March 2020 lows as buying opportunities that resulted in terrific gains for our clients.  For those who panicked and moved to conservative or cash positions, the result was locking in losses and missing the market rebound.  We rode the wave with companies situated for the recovery such as restaurants with takeout services like Chipotle, delivery service company Amazon, and Visa for online buying. Later in 2020, we moved to airlines as travel resumed and Cheesecake Factory for the growing dine-in crowd tired of eating out of paper bags. 

Several clients have expressed their concerns with the current administration and the policies being implemented.  The results of policy and legislation changes may be experienced in the long-term if at all on the economy.  However, the short-term volatility from reactions to comments or speculation is typically buying opportunities.  The important focus we keep is on actual data on key issues that include consumer spending, consumer sentiment, corporate earnings and growth, interest and inflation rates, new job growth, and unemployment.  Some indicators will provide near-term insights while others are past data that is less meaningful. 

We are most concerned when US economic fundamentals are eroding.  At this point in 2025, it does not appear the US economy is at risk of slowing.  Therefore, we maintain our positive view of the stock market so long as the US economy remains stable.

Give us a call or send an email if you have any comments on this Weekly UPdate.  Let us know if you have any questions about your finances and ways, we can help you and your family achieve your goals.