How to invest during a market downturn – 2025 tariffs

The calm before the drop

First, I want to delve a little into what happened in the stock market these last few months. I rarely do that, but it is a good occasion. I will take the S&P500 index as an example since it is the most used index, and it represents a massive portion of the world stock market. Of course, this will be a personal interpretation of what happened.

Trump was elected on November 5, 2024. The market first reacted positively until early December 2024. At this point, the stock market started to plateau. From early December 2024 to mid-February 2025, the market was apparently waiting for what Trump would do.

When we consider that Trump announced that the stock market would reach new all-time highs with him in power, the goal was not really achieved with this plateau.

The first drop

Then, from February 19th 2025 to March 13th, the market dropped significantly. Since the market lost 10% from its previous all-time high, this qualifies as a correction (a 20% drop would be considered a bear market).

2025 tariffs and market downturn

After this first drop, the market slowly rebounded on an optimistic note, maybe people thought the trade war would not happen.

But the market was wrong, and Trump delivered the biggest set of tariffs ever implemented on April 2nd. These tariffs were based on complex estimations of the trade deficits between countries and added a baseline 10% to each country and then significant tariffs on top of that for many countries. The 10% baseline was set to be applied starting April 5th and the additional tariffs on April 9th. Even Switzerland got an additional 31% tariff.

Trump called this day, Liberation Day, because he feels these tariffs will liberate the United States from trade injustice. Trump declared it would help American industry by renewing local production. However, the stock market did not perceive it as such and reacted very negatively by dropping more than 10% in a few days. The market entered correction territory.

Tariffs pause and market reaction

Finally, the last significant event was Trump announcing a 90-day pause in the tariffs on April 9th. At this point, the stock market rebounded significantly. After this, there were some more exemptions and small announcements. There was also some retaliation, mostly from China. It is very difficult to know what will happen with these tariffs, the situation remains highly unpredictable.

The market gained almost 20% until May 19th 2025. At this point, it started dropping again because Trump announced new potential tariffs against Apple and the EU. So, even though it rebounded quickly, it has not yet recovered to its all-time high.

It is ironic to note that Trump announced the stock market would reach new all-time highs if he was in power. In practice, this did not happen, and we are actually seeing worse performance on the stock market than before.

The main issue with the current situation is the lack of predictability. Businesses can probably handle tariffs (by passing them to customers), but businesses have a harder time handling the volatility and the uncertainty. If their products can be taxed at different rates each day, they do not know how to price them. And in some cases, the scale of the tariffs is very significant.

What should we do now?

With the market in such a state of turmoil, investors are left wondering how to respond. So, this leads us to the questions from investors. This is probably not what you want to hear, but the best we can do as investors is to do nothing.

Significant market events like this will always happen in the lifetime of an investor. They are normal. They are always slightly different, so it is impossible to know when they will happen in advance or what will happen afterwards. But what we know is that these events will happen again in the future.

The best we can do is to try to ignore the noise and keep investing as we were. This is what I am doing, and I have not changed my strategy a bit and I keep investing monthly as I have been doing for multiple years now.

And the worst we can do is sell and try to time the market. If you have spare cash (for instance, in an opportunity fund), it could make sense to attempt to buy more (buy the dip). But otherwise, selling and attempting to buy cheaper later is almost always a losing game.

For long-term passive investors, the motto should always be: stay the course

Lessons from the past downturns

These market downturns, corrections and recessions are nothing new. They have been happening on the stock for more than 150 years. We can look at some recent events to see what happened.

The most interesting event is the 2018 trade war. In 2018, Trump in his first presidency announced some tariffs on steel and aluminum and some extra tariffs on Chinese goods. This escalated between China and the US. For multiple months, the market remained flat. And then, from October to December, the market hit a low of almost 20% below highs. Less than five months later, the market had fully recovered already. So, we can see that despite a trade war, the markets recovered.

Even more recently, COVID-19 created a major crash in the stock market, more than 30% in a matter of weeks. This made sense since most of the world economy was paralyzed, around March 2020. However, the stock market recovered by August 2020. This was one of the fastest bear markets in history. This can be witnessed on the graph above.

Again, the stock market crashed in 2022 by more than 20%. This time, it took almost two years to recover. This stock market downturn was due to the high inflation and the fears of a recession. It took a while to recover because there were no great factors pushing the recovery.

We can see that each downturn was slightly different:

• The cause of the downturn was different
• The recovery did not take the same time
• The speed of the fall and the recovery is different

However, what is not different is that the market recovered. Therefore, in all three cases, the investors who sold mostly took losses. On the other hand, investors who continued to invest got a bargain and their portfolio recovered.

So, what are we learning from the past:

• Market downturns always happen
• The market always recovers
• Timing the market is impossible
• Each event is always slightly different

Therefore, doing nothing and weathering the bad times is our best strategy.

FAQ

Final thoughts for passive investors

Market downturns are not great for passive investors. We would rather not go through them. And this is especially true when a single person causes the downturn. But stock market downturns are unavoidable.

So, is this stock market downturn different? This downturn is somewhat unique, but not unprecedented. If we learn anything from history, it is that each stock market event is different, but the market always recovered. A new downturn is not different enough to worry us.

Therefore, the best we can do is ignore the noise, keep investing and keep our eyes on the long-term horizon. Of course, it is tempting to try to do something. However, sometimes, the best move we can do is simply to hold steady and do nothing.

There will likely be some more turmoil when the current tariffs pause ends and the trade war continues. Or, the trade war may stop entirely and we may see a swift recovery. There is no way to know, so again, we should stay the course.

If you are unsure about your asset allocation, you should take some time to review your asset allocation and ensures it matches your goals. Or, if you are not yet investing and want to profit from the market, you can read our guide on investing in Switzerland.

What about you? What do you think about this stock market downturn?