Stocks plummeted on Thursday in reaction to a widening global trade war. With few parallels in history, markets are wondering where things go from here.
Investors have made their opinion clear: they hate the trade war.
After crashing at the open, the market rout deepened as Thursday’s session dragged on. As of 1:45 p.m. ET, the Dow was down over 1,200 points, the Nasdaq Composite fell 5%, and the S&P 500 had lost almost 4%, with the benchmark index on track for its worst day in three years.
But with President Donald Trump’s insistence that tariffs will be a windfall for American industry, it doesn’t seem like the market will get a reprieve anytime soon.
So now what?
Stocks have enjoyed a secular bull market since around 2009, shortly after investors crawled out of the depths of the Great Recession. Now the question is, is that era of gains over, or is this an opportunity for a reset of valuations that investors can get behind?
To understand the market’s fear of tariffs, it’s important to know that earnings growth has historically been the No. 1 driver of stock market gains.
Through that lens, the market’s reaction makes sense. Goldman Sachs said earlier this year that for every five percentage point increase in the tariff rate, investors can expect S&P 500 earnings to fall by 1%- 2%. After Trump’s Rose Garden address, the US tariff rate stood at about 20%.
