Late in the week, global stocks made it clear that the tariff announcement was worse-than-expected. We were looking for a roughly 10% effective tariff rate once all the details were parsed, but the actual figure appears to be closer to 20%. That’s also about double what the general market was expecting, and as I’ve written time and again, markets do not like negative surprises.
Panicked investors everywhere are trying to decipher what to do next, which makes the current environment ripe for major missteps.
These are the moments historically when investors start trying to predict what is going to happen next, and the assessments tend to skew sharply negative. In the current environment, it may mean predicting a prolonged trade war, a recession (or worse), and/or more equity market downside. It does not matter if you have been an investor for one year or for 30+ years like me—the chances of being precisely correct are very, very low.
Investors tried to make the same predictions the day after Black Monday in 1987, when the S&P 500 fell -22.61% in a single day. Ditto in 2008, when a plummeting market was accompanied by images of bankers leaving Lehman Brothers with boxes. The Covid-19 pandemic is arguably in a league of its own in this respect, too.
There are very reasonable arguments that the current shift in trade policy should fall into a different category, given the medium- to long-term implications it could have on growth, prices, and global economic order. I could write many columns fleshing out economic theories for and against tariffs, while analyzing every line item of the April 2 announcement and making projections for economic impact. This is the type of work we do at Zacks Investment Management — determining which stocks and bonds to own in portfolios, as we make earnings and interest rate forecasts.
But this is not the type of analysis I think investors should be doing when determining whether or not to stay invested.
Even if we knew for sure the U.S. was either in—or heading for—a recession, it would not necessarily make it a prudent strategy to get out of stocks. The fundamental problem with this decision is that investors cannot know when to get back in, which is a dilemma that’s complicated further by the market’s tendency to rally when the news is still dismal and uncertain.
Think back to the Covid-19 pandemic. These were the biggest S&P 500 selloffs in March 2020:
- March 6, 2020: -7.6%
- March 11, 2020: -9.51%
- March 13, 2020: -11.98%
Some may find it difficult to fathom/remember such steep declines one after the other, but that’s what the market did. If you told me I could travel back in time to March 1, 2020—armed with knowledge that the market was about to experience severe ‘short-term pain’—my position would be the same: I still wouldn’t sell.
That’s because throughout history, the news cycle lags the market by many, many months. When stocks started to surge in 2020, the unemployment rate was double digits, and the vaccine was nine months away from being approved. There were hardly any green shoots to be found anywhere.
And that’s my main point: selling out of the market today substantially increases the chances of being whipsawed when a rally takes hold, which again, no one can know the precise timing of.
In the current environment, the setup is that any modicum of good news on trade will factor as a positive surprise for markets going forward, which will almost certainly trigger strong moves higher. Long-term investors simply cannot afford to miss these upswings. If you put $10,000 into the S&P 500 on January 1, 1980, and stayed invested through March 31, 2025, you’d have $1,635,083.
But if you missed just the five best days in the market over that period, your investment would have grown to just $1,013,782.
That’s over half a million dollars for missing the best five days, which also meant staying invested in the days following the 1987 Black Monday crash, and throughout the Tech Bubble, 2008 Global Financial Crisis, and the Covid-19 pandemic. That’s a very hard series of choices for investors to make, but throughout history it has paid off. I’m convinced it will again.
Bottom Line for Investors
The market’s response to the tariff announcements was unsettling, and I empathize with the challenges and stress such sharp declines can cause for investors. The emotional dimension of market declines can give many investors the urge to act.
But as history has shown, the best course of action is often to resist this urge. Markets are unpredictable day to day—with about a 50/50 chance of gains or losses—but over longer periods, the odds shift dramatically in the investor’s favor. Since 1937, being invested in U.S. stocks for five years has meant earning positive returns 93% of the time. Over 10 years, it’s 97.4%.
Remaining invested during turbulent times is not easy, but it has been—and will continue to be, in my view—the single most reliable strategy for building wealth over time. The power of compounding works best when left alone.
1 Wall Street Journal. March 15, 2025. https://advisor.zacksim.com/e/376582/d-economy-feat5-consumers-pos2/5stkd8/1189097503/h/cEzFYzByPVvCyinLeWRQSlQVBjbe7jfV2huGBrJhdqY
2 Fred Economic Data. February 21, 2025. https://advisor.zacksim.com/e/376582/series-MICH-/5stkdc/1189097503/h/cEzFYzByPVvCyinLeWRQSlQVBjbe7jfV2huGBrJhdqY
3 Google Trends. 2025.
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