Focus Perspectives: The Market’s Reaction to Tariff Policy Shocks

Although uncertainty around shifting trade policies contributed to increased market volatility throughout the first quarter, the Trump administration’s tariff announcement on April 2 triggered the steepest market decline since the Covid-19 pandemic. On April 3 and April 4 alone, the S&P 500 dropped 10.5%. Given that the new tariff policies have been under discussion for many weeks, many wondered what prompted such a steep and sudden market reaction. Markets tend to reflect the average expectations of all participants, and the tariff levels announced were significantly higher than most had anticipated. As a result, investors responded sharply. The news also heightened concerns about the global trade conflict, which could slow economic growth both in the U.S. and internationally. Despite the news, investors may consider different ways to manage the market declines, such as maintaining a diversified portfolio, considering rebalancing, and taking advantage of tax-loss harvesting.

If interested in a deeper dive, we encourage you read our article, “Market Update: The Trump Tariff Strategy,” and register for our special market update webinar on April 10, where we’ll offer additional perspectives, discuss potential outcomes, and answer your questions. Register here.

Sources: S&P 500 Index data.

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