Henry A. from Denver, CO asks: Hi Mitch, I’m sure you are getting a barrage of emails and questions about the markets and what you’re seeing. Is this a bear market? Where does it all go from here? I apologize I know that’s a broad question but just looking for some insights.
Mitch’s Response:
The short answer for all investors—no matter how much experience you have—is that there is no way to know how bumpy and volatile markets will be in this period. As I write, the S&P 500 has dipped into bear market territory, but we’re also seeing wild swings in both directions.
There is little historical, empirical evidence that tariffs of this magnitude have ushered in economic prosperity. When the Smoot Hawley Act was passed in 1930—which saw tariff rates rise to 20%—it set off a trade war, lowered global trade by nearly two-thirds, and hurt U.S. exports because other countries retaliated. The U.S. economy was already weak when these tariffs were implemented, and the end effect was a colossal blunder.
Worried About a Bear Market? You’re Not Alone — Here’s How to Stay on Track
In times like these, knowledge and preparation are your best defenses. That’s why we’re offering our free guide: “Everything You Need to Know About Bear Markets1.” Inside, you’ll find the key steps to protect your investments and stay on track—no matter what the market does next.
You’ll get insights on:
- The three categories of bear markets
- Investor psychology during a bear market
- Preparing for the bull market that always follows a bear market
- Plus, more helpful insights to help you navigate downturns, bear markets, economic recoveries, and bull markets
If you have $500,000 or more to invest, get this helpful guide today!
Download – Everything You Need to Know About Bear Markets1
When similar tariff threats loomed in 2018 and 2019, only about a quarter of the theoretical tariff revenue was actually collected. Why? Businesses found workarounds—rerouting supply chains, shifting sourcing, and negotiating exemptions. The current measures, however, are broader and potentially harder to sidestep, especially with fewer exemptions and more categories involved.
President Trump also appears to be laser-focused on trade deficits, which we eventually discovered was the basis for how the administration calculated the so-called “reciprocal tariffs.” It’s the reason the tariff rates ended up being higher than the markets anticipated, and it’s also the reason the markets are responding so adversely.
As mentioned, there is no way to know for sure how this story will play out in the coming weeks and months. But I can offer three potential scenarios for how I think it could unfold:
- De-escalation happens from here forward, i.e., deals get announced and President Trump can declare ‘victories’
In this scenario, some tariffs may actually never take effect. This would be similar to what we saw in the first term, when only about a quarter of the theoretical tariff revenue was actually collected as mentioned above. Deals got made, and trade ultimately became freer in the process (save for barriers against China that stuck).
There is also the possibility that the administration’s tariff policy is struck down by the courts. The Supreme Court could rule that President Trump lacks authority under the 1977 International Emergency Economic Powers Act to implement such broad tariffs, which would kick the policy issue to Congress. I’m not sure there would be enough votes to reinstate President Trump’s tariff policy as-is.
Throughout this process, we could see interest rates continue to fall as the administration turns to tax cuts and deregulation as the next phase of economic policy. In my view, markets would likely recover quickly in this outcome.
- Tariffs are enacted but loosely enforced
Even if the tariffs go into effect, enforcement might be light or uneven, with many companies receiving exemptions or finding alternate paths around them. In this case, the economic drag would be limited, and markets could stabilize after the initial shock.
- Full implementation and strict enforcement
The third and most damaging scenario involves the full application of the tariffs with little flexibility. This would likely lead to prolonged uncertainty, higher costs across industries, and potential retaliation from trading partners. Under this outcome, markets could remain volatile, and economic growth might slow. This is the least likely scenario, in my view, as political pressure and a loud chorus from the business community would ultimately grow too loud.
With market uncertainty at an all-time high, understanding what drives bull and bear cycles is more crucial than ever. That’s why we’re offering our free guide: “Everything You Need to Know About Bear Markets2.” This comprehensive guide breaks down the factors behind market volatility and provides practical strategies to help you protect your portfolio during unpredictable times.
Inside, you’ll discover:
- The three categories of bear markets
- Investor psychology during a bear market
- Preparing for the bull market that always follows a bear market
- Plus, more helpful insights to help you navigate downturns, bear markets, economic recoveries, and bull markets
If you have $500,000 or more to invest, click on the link below to get this free guide today!
Disclosure
1 Zacks Investment Management reserves the right to amend the terms or rescind the free Everything You Need to Know About Bear Markets offer at any time and for any reason at its discretion.
2 Zacks Investment Management reserves the right to amend the terms or rescind the free Everything You Need to Know About Bear Markets offer at any time and for any reason at its discretion.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.
The Russell 2000 Index is a well-known, unmanaged index of the prices of 2000 small-cap company common stocks, selected by Russell. The Russell 2000 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Russell 3000 Growth Index measures the performance of the broad growth segment of the US equity universe. It includes those Russell 3000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years). The Russell 3000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Russell 3000 Value Index measures the performance of the broad value segment of the US equity value universe. It includes those Russell 3000 companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years). The Russell 3000 Value Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.