NEW YORK — Wall Street shuddered, and a level of shock unseen since COVID-19’s outbreak tore through financial markets worldwide Thursday on worries about the damage President Donald Trump’s newest set of tariffs could do to economies across continents, including his own.
The S&P 500 sank 4.8%, more than in major markets across Asia and Europe, for its worst day since the pandemic crashed the economy in 2020. The Dow Jones Industrial Average dropped 1,679 points, or 4%, and the Nasdaq composite tumbled 6%.
Little was spared in financial markets as fear flared about the potentially toxic mix of weakening economic growth and higher inflation that tariffs can create.
Mike Pistillo Jr., center, works Thursday on the floor at the New York Stock Exchange.
Everything from crude oil to Big Tech stocks to the value of the U.S. dollar against other currencies fell. Even gold, which hit records recently as investors sought something safer, pulled lower.
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Some of the worst hits walloped smaller U.S. companies, and the Russell 2000 index of smaller stocks dropped 6.6% to pull more than 20% below its record.
Investors worldwide knew Trump was going to announce a sweeping set of tariffs late Wednesday, and fears surrounding it already pulled Wall Street’s main measure of health, the S&P 500 index, 10% below its all-time high.
Trump still managed to surprise them with “the worst case scenario for tariffs,†according to Mary Ann Bartels, chief investment officer at Sanctuary Wealth.
Trump announced a minimum tariff of 10% on imports, with the tax rate running much higher on products from certain countries like China and those from the European Union. It's "plausible" the tariffs altogether, which would rival levels unseen in roughly a century, could knock down U.S. economic growth by 2 percentage points this year and raise inflation close to 5%, according to investment bank UBS.
Such a hit would be so big that it "makes one's rational mind regard the possibility of them sticking as low," according to Bhanu Baweja and other strategists at UBS.
Wall Street had long assumed Trump would use tariffs merely as a tool for negotiations with other countries, rather than as a long-term policy. But Wednesday's announcement may suggest Trump sees tariffs more as helping to solve an ideological goal than as an opening bet in a poker game. Trump on Wednesday talked about wresting manufacturing jobs back to the United States, a process that could take years.
President Donald Trump walks to board Marine One after speaking with reporters Thursday on the South Lawn of the White House in Washington.
Stock prices might need to fall much more than 10% from their all-time high to reflect the recession that could follow, along with the hit to profits that U.S. companies could take. The S&P 500 is now down about 11% from its record set in February.
"Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade," said Sean Sun, portfolio manager at Thornburg Investment Management, though he sees Trump's announcement Wednesday as more of an opening move than an endpoint for policy.
Trump offered an upbeat reaction on Thursday after he was asked about the stock market drop as he left the White House to fly to his Florida golf club.
"I think it's going very well," he said. "We have an operation, like when a patient gets operated on and it's a big thing. I said this would exactly be the way it is."
A woman shops at an Asian grocery market Thursday in Rowland Heights, Calif.
Tariff push
Trump's expansive new tariffs upend a decades-long global trend of lower trade barriers and is likely, economists say, to raise prices for Americans by thousands of dollars each year while sharply slowing the U.S. economy.
The White House is gambling that other countries will also suffer enough pain that they will open up their economies to more American exports, leading to negotiations that would reduce the tariffs imposed Wednesday.
Or, the White House hopes, more companies — both American and foreign — will reverse their moves toward global supply chains and bring more production to the United States to avoid higher import taxes.
But a key question for the Trump administration will be how Americans react to the tariffs. If prices rise noticeably and jobs are lost, voters could turn against the duties and make it harder to keep them in place for the length of time needed to encourage companies to return to the U.S.
The Yale Budget Lab estimates all the Trump administration's tariffs would cost the average household $3,800 in higher prices this year. The figure includes the impact of the 10% universal tariff announced Wednesday, plus much higher tariffs on about 60 countries, as well as previous import taxes on steel, aluminum and cars.
Inflation could top 4% this year, from 2.8% currently, while the economy may barely grow, according to estimates by Nationwide Financial.
The average U.S. tariff could rise to almost 25% when the tariffs are fully implemented Wednesday, economists estimate, higher than it has been in more than a century and higher than the 1930 Smoot-Hawley tariffs that are widely blamed for worsening the Great Recession. Economists note that the United States engages in much more trade now than it did then.
"The president just announced the de facto separation of the U.S. economy from the global economy," said Mary Lovely, senior fellow at the Peterson Institute for International Relations. "The stage is set for higher prices and slower growth over the long term."
Textiles are displayed Thursday in the fashion district in Los Angeles.
Commerce Secretary Howard Lutnick, in an interview on CNBC Thursday, claimed the policies will help open markets overseas for U.S. exports.
"I expect most countries to start to really examine their trade policy towards the United States of America, and stop picking on us," he said. "This is the reordering of fair trade."
But a former trade official from Trump's first term, speaking to reporters on condition of anonymity Thursday, suggested that Americans, including those who voted for Trump, may have difficulty accepting the stiff duties.
Americans "have never faced tariffs like this," the former official said. "The downstream impact on clothing and shoe stores, it's going to be pretty significant. So we'll have to see how the Trump voters view thisÌý… and how long their support for these policies goes."
The tariffs will hit many Asian countries particularly hard, with duties on Vietnamese imports rising to 46% and on goods from Indonesia to 32%. Tariffs on some Chinese imports will now be as high as 79%. Those three countries are the top sources of U.S. shoe imports, with Nike making about half its shoes last year and one-third of its clothes in Vietnam.
The Yale Budget Lab estimates all Trump's tariffs this year will push clothing prices 17% higher.
On Thursday, the Home Furnishings Association, which represents more than 13,000 U.S. furniture stores, predicted that the tariffs will increase prices between 10% and 46%. Vietnam and China are the top furniture exporters to the U.S.
4 strategies to navigate market volatility in 2025
Navigating market volatility in 2025
After reaching all-time highs in February, U.S. markets have experienced notable volatility amidst a flurry of news regarding tariffs and rapid changes in the geopolitical landscape. The S&P 500 is now negative for the year, having declined nearly 9% from its mid-February peak (as of March 31, 2025), while the tech-heavy Nasdaq briefly entered correction territory in early March, and is down over 9%. This pullback has effectively erased the post-election gains, explains, and investors have been seeking safe havens like bonds and gold.
Understanding Current Volatility Drivers
Market weakness has been driven primarily by high levels of uncertainty rather than any meaningful change to economic fundamentals. Investors dislike uncertainty in any form, and are experiencing it through multiple channels.
While investors get tariff headlines multiple times a day, they still don't know: Will all the proposed tariffs actually go into place? How long will they last? What might ultimate settlements look like? How will consumers respond? How will manufacturers respond, domestically and abroad?Ìý
The past several weeks have made it clear that proposals and threats can change at any moment. Unpredictable policy leads investors to reduce risk exposure and keep capital on the sidelines, at least temporarily until they have a better sense of the playing field.
Contextualizing Market Pullbacks
While there has been impressive performance in equity markets for two consecutive years, pullbacks are normal. On average, the S&P 500 has seen a correction, or decline of at least 10%, every year going back to 1928. Declines of 5% are even more common, occurring over three times per year on average over that period. In spite of these regular drawdowns, the S&P 500 has managed strong double-digit returns over the past 100 years. In many instances, pullbacks can be healthy for durable market returns, curbing.
Portfolio Diversification Demonstrating Value
This volatility has reinforced the benefits that diversification can offer across both asset classes and geographic regions. Thus far this year, while the S&P 500 is down over 4% as of March 31, 2025, the market has seen:
- International equity strength: European equities have delivered their best relative performance to start the year since 2000, with double-digit gains during the first two months of 2025. Emerging markets are also showing gains against U.S. market declines.
Ìý - Fixed income outperformance: Bonds are up over 2% for the year while U.S. equities have declined, demonstrating their essential role as portfolio stabilizers during market turbulence.
Foreign markets entered the year in a very different place than U.S. equities. International stock valuations were at historical levels of discount vs. U.S. stock valuations. Many international economies are also significantly earlier in their economic cycle (meaning they have seen recessions more recently) than the U.S., setting the framework for a longer potential period of future economic growth. At the same time, investors have been meaningfully underweight in international equities relative to historical levels. All of these factors are contributing to the outperformance of international stocks seen year-to-date.
Meanwhile, bonds are acting as a hedge against a potential economic slowdown in the U.S. Domestic consumers and businesses are grappling with monetary policy that has been restrictive for an extended period of time and significant uncertainty related to trade policy. As investors grow concerned about the potential impact to the economy, they bet that the Fed may have to ease and bring rates lower in the future than they are today. This causes bond prices to rise, offsetting weakness in the equity markets.
Medium-term, U.S. equity markets can be a great place to be invested. Some of the highest quality companies in the world are in the S&P 500—these businesses can grow earnings regardless of economic pressures. The Fed also has the capacity to stimulate the economy should growth and corporate earnings come under meaningful pressure.Ìý
However, other regions of the world can generate attractive returns, especially given relative valuations and greenshoots as it relates to international earnings. And diversification can help ensure balanced returns in periods of temporary weakness in a particular region or asset class.
Strategic Actions for Investors
During periods of elevated volatility, here's what disciplined investors can do:
1. Strategic Tax-Loss Harvesting
Market declines create valuable opportunities. Identifying positions with unrealized losses while maintaining market exposure through temporary substitutes can generate significant tax benefits. Ideally, you've implemented automated harvesting processes to capitalize on volatility without making emotional decisions during market stress.
2. Portfolio Rebalancing
Market movements naturally shift allocations away from targets. Given the recent move lower in equities and appreciation of bonds, you may have experienced drift relative to your target allocations. Rather than relying solely on calendar-based approaches, consider a volatility-based rebalancing strategy that responds directly to market conditions. This approach allows portfolios to systematically "buy low and sell high" by trimming outperformers and adding to underperforming assets.Ìý
3. Opportunistic Capital Deployment
For investors with available capital to deploy, you can take advantage of better entry points into U.S. equity markets compared to recent market highs. Historical data suggests that after a 5% pullback, average stock returns one year later are around 12% and markets are higher 75% of the time.Ìý
4. Stick to Your Plan
Perhaps most critically, avoid reactive decisions driven by headlines or short-term market movements. If you have a financial plan, remember that it already incorporates scenarios of significant market stress. Stay disciplined—the benefit of having a plan is you aren't forced to sell at inopportune times because you took too much risk or lacked confidence in your positioning.
During volatile times, you can also take a moment to revisit your long-term goals. This helps you stay focused and keep things in perspective. Try to limit how much you're watching the daily market news; it can often lead to knee-jerk reactions.
Conclusion
While market drawdowns can be stressful, data shows that if you are invested for decades, the negative impacts of short-term market movements are dwarfed by the long-term positives of compounding returns. There can be a significant upside in staying disciplined and taking advantage of the opportunities created by market volatility.
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