The recent introduction of tariffs by President Trump has raised concerns about the impact on the stock market. While some experts argue that tariffs can foster an uptick in merger and acquisition activity, fuel stock buybacks, and promote domestic interests, others point to a decisively negative impact on companies directly exposed to these tariffs.
A study conducted by Liberty Street Economics found that public companies directly exposed to China via imports and/or exports performed statistically worse on the days of tariff announcements. This weakness persisted beyond initial tariff announcement days, with companies experiencing average declines in profits, employment, sales, and labor productivity from 2019 to 2021.
The authors differentiate between output and input tariffs, noting that tariffs on finished products are where some U.S. tariffs are directed, but also imposed on inputs, which can increase prices on American-made goods, making them less competitive on price.
Despite this, history suggests that the stock market is prone to swings in both directions. While a recent analysis by Bespoke Investment Group found that the average downturn of at least 20% in the benchmark index lasted only 286 calendar days, or approximately 9.5 months, typical S&P 500 bull markets have stuck around for roughly 3.5 times as long.
Furthermore, a study by Crestmont Research has shown that even if an investor had purchased a security that mirrored the performance of the S&P 500 at any point since 1900 and simply held onto their position for 20 years, they would have made money every single time. This highlights the positive long-term outlook for equities, which remains unchanged despite President Trump’s tariffs.
While it is true that history can repeat itself, it also shows that the stock market has a way of recovering from downturns. The key takeaway is that patience and a long-term perspective are essential when investing in the stock market.
Source: https://www.fool.com/investing/2025/02/09/donald-trump-tariffs-stock-market-crash-history