The Trump administration’s "Reciprocal" Tariff Plan announced on April 2nd continued to roil the global equity markets for the third day in a row. Active stock market participants have adopted a risk-off, defensive sentiment by selling equities, while trying to discern the likely impact of Trump’s unprecedented attempt to re-engineer global trade policy more in favor of the U.S.

The last record high for the S&P 500 Index was on February 19th of this year.  Since then, it has declined over 17%, very close to bear market territory [1]

‍

The market volatility has been gut-wrenching, even after considering the positive performance early Tuesday, April 8th [2]:

Market volatility like this, while sudden, unnerving and fear-provoking, is not an uncommon event in financial market history.  Recall that it was only five years ago that markets were upended in a much more dramatic fashion by the COVID-19 pandemic in early 2020 [3]:

‍

In the course of 23 days, the market fell over 34%, but recovered quickly, such that by July 17th of 2020, the market was even for the year.  The S&P 500 Index subsequently ended the year up +18%.

An important point to remember during times like these is that large daily declines can often be followed by large upswings, as illustrated by this table from 2020 [4]:

‍

Financial history since 1926 records many market declines.  What investors need to remember is that the market (on average) has rewarded patient investors who can endure such temporary volatility [5]

‍

This chart shows the cumulative one-, three- and five-year returns in the US stock market since 1926 following market declines of 10%, 20%and 30% [6]

‍

David Booth, Founder and Chairman of Dimensional Fund Advisors, recently wrote the following [7]:

Each crisis can feel like the end of the world when it happens, yet the pattern of recovery stays remarkably consistent. Over 50 years of working in finance has consistently shown me two things: We cannot predict the future, but despite that uncertainty, markets have eventually bounced back.  There are no guarantees, of course, but that is the way it has worked historically.

No one knows if the Trump Administration will achieve their desired global trade policy goals, or what the ultimate impact they will have on corporate earnings, inflation, employment or whether it will lead to a recession.  We also don’t know how long it will take for the market to recover.  The key variable for long-term investors is that they have set their overall portfolio allocation at the right mix of stocks, bonds and cash that allows them to weather market turbulence without undue emotional turmoil. Clients who can stay the course through these times invariably have the portfolio structure that works best for their particular risk tolerance and capacity, providing the confidence that they are on track to achieve their objectives.

‍

[1] YCharts

[2] Online Wall Street Journal, accessed 04/08/25

[3] YCharts

[4] SuperGrok

[5] Dimensional Fund Advisors

[6] https://www.dimensional.com/hk-en/insights/stock-gains-can-add-up-after-big-declines

[7] https://my.dimensional.com/in-shaky-times-investors-should-hold-their-nerve

‍