On April 2, 2025 (“Liberation Day”), the Trump administration announced sweeping, ‘reciprocal’ tariffs, and readers likely recall that the initial market reaction was swift and negative. Investors immediately tried to price in worst-case scenarios like higher import costs, pressure on profit margins, slower growth, renewed inflation, and a more complicated path for interest rates.
The conflict involving Iran followed a similar pattern. The initial reaction was sharp, with the S&P 500 nearly reaching correction territory in March. In that instance, investors were pricing-in fears about energy supply, inflation, and higher interest rates.
In both cases, the short-term market reaction was driven by uncertainty, understandably. But we now know that the longer-term response was driven by fundamentals, which remained strong despite these pressures. The S&P 500 rose nearly 18% in 2025 and gained another 10% in the first half of 2026.
The S&P 500 Absorbed Tariff and War Shocks Quickly, Then Continued to Rise (2024 – Present)
Source: Federal Reserve Bank of St. Louis 1
As we enter the second half of 2026, the tariff and war risks are back on the table, with one difference: the market has already spent the past year pricing, testing, and reassessing both risks in real time.
On the tariff side, we’ve seen an additional 50% tariff on a range of Canadian goods, including wine, alcoholic beverages, hockey sticks, cement, and other products. This comes on top of a broader tariff stack that includes duties on Chinese goods, non-USMCA Mexican products, European Union goods, semiconductors, and a proposed tariff (10% – 12.5%) tied to forced-labor concerns across dozens of countries.
I continue to believe that tariffs are not positive for the economy, as they raise costs, create uncertainty for businesses, and can pressure margins for companies with global supply chains or limited pricing power. But they are also no longer a brand-new shock.
When tariffs were first announced in 2025, investors had to consider a wide range of unknowns. Would companies pass the cost on to consumers? Would inflation reaccelerate? Would profit margins compress? Would trade partners retaliate in a way that disrupted global growth?
Investors now know the answers to most of those questions, with the bottom line being that corporate earnings proved more resilient than many feared. The result was not painless, but it also was not the market-breaking event many feared when the policy was first announced.
The renewed conflict involving Iran is similar. It remains a near-term risk because of its potential effects on energy supply, inflation, and interest rates. Earlier this year, investors entered the quarter with oil prices sharply higher and uncertainty surrounding transit through the Strait of Hormuz. But as the quarter progressed, the most severe market assumptions receded. Brent crude fell nearly 40% from its April peak, and oil exports from the Persian Gulf recovered to approximately 60% of their pre-war level.
With the conflict back on, Brent crude is near $90 per barrel, and Gulf transit has become volatile again, with some July days seeing only a fraction of normal vessel traffic through the Strait of Hormuz. While this is not a risk investors should dismiss, the market has seen this pattern before: escalation pushes oil prices higher, inflation expectations rise, bond yields tick higher, and investors reduce expectations for monetary easing. But when energy flows stabilize, much of that pricing can reverse quickly.
The potential consequences of renewed conflict are serious, but the channels through which it affects the economy are increasingly well understood. The same is true for tariffs. Both can still create volatility, but they likely need to worsen, broaden, or surprise markets in a new way to create lasting damage. And I don’t see that happening here.
Bottom Line for Investors
Tariffs and war are not good news, and neither should be ignored. Both can affect prices, margins, interest rates, energy markets, and investor confidence.
But these are no longer entirely new risks. Investors have already seen both issues play out in real time, and the worst-case, long-term market assumptions did not materialize. Volatility remains a distinct possibility, sure. But in my view, unless tariffs or the Iran conflict produce a new and more damaging economic surprise, the more important drivers for investors are still likely to be economic and corporate earnings fundamentals—both of which remain strong.
Bottom Line for Investors
To be fair, the U.S. consumer is under pressure, especially from high prices in everyday categories. But pressure has not been resulting in retrenchment, at least not to date. Spending remains positive, higher-income households continue to support aggregate demand, and lower-income consumers appear to be adjusting rather than retreating entirely.
For markets, the key question is not whether consumers feel good. It is whether spending, earnings, and investment hold up better than today’s low expectations imply. So far, they have.
1 Fred Economic Data. July 28, 2026. https://advisor.zacksim.com/e/376582/series-SP500/5vpynx/1578235974/h/5Zltz33BeMCqHvx_Ik1Tyq9iDVVxJDUEvueQEc0_ENs
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