The U.S. stock market plunged after President Donald Trump announced harsh new tariffs on April 2, calling it “Liberation Day.” Within five trading days, the S&P 500 dropped 19% from its previous high. This dramatic fall caused many economists to boost their recession forecasts, while investors sold U.S. stocks at a historic pace.
Although the immediate future remains uncertain, history offers some clues about what could happen next. The S&P 500 often bounces back after sharp declines. Still, Trump’s tariffs have complicated the traditional recovery patterns.
Historically, the S&P 500 recovers about 12% within a year after falling into correction territory. According to UBS Wealth Management, the index first closed in correction territory on March 13, at 5,522 points. Based on past averages, the S&P 500 could rise to about 6,185 in the next 12 months.
However, this time could be different because of Trump’s tariffs. Trump’s tariffs are now raising the average tax on U.S. imports to 11.5%. That is the highest import tax level since 1943. Compared to last year, the effective rate jumped by nine percentage points.
The phrase Trump’s tariffs highlights the key reason behind the current market chaos. Smaller tariff hikes in history also led to market crashes. Between 1957 and 1965, U.S. tariffs rose by just 1.5 percentage points. Yet during that period, the S&P 500 dropped twice once by 21% and another time by 28%.
Trump’s tariffs were designed to cut the U.S. trade deficit. But history shows that shrinking trade deficits often spell trouble. Since 1990, there have been four major drops in the U.S. trade deficit. Three of those times ended in recessions, with the S&P 500 averaging a brutal 41% decline.
Today, as the uncertainty around Trump’s tariffs grows, investors are right to be cautious. The stock market faces a rocky path ahead. While some hope for a fast recovery, past patterns mixed with current tariff levels suggest a bumpy ride.
Still, Trump’s tariffs remain the central force shaping the market’s next move. Investors should brace for more volatility as new policies unfold.
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