Market Chaos Explained: How New Tariffs Shook Wall Street
Market Recap for the Week of April 6, 2025
Last week was the most volatile week for stocks since 2020. Heading into the week, we all knew that the President was going to announce a set of reciprocal tariffs on Wednesday, right after the market closed. However, no one knew how drastic these new tariffs would be. The U.S. stock market performed well from Monday through Wednesday. But around 4:20 p.m. on Wednesday, the President held up a sign revealing the new tariff rates he plans to enact. Even though the market closes at 4:00 p.m. EST, investors can still trade after hours until 8:00 p.m. After-hours trading showed the market declining almost immediately. Thursday morning was no better, with the S&P 500 dropping about 5% for the day. Friday was even worse, as the S&P 500 declined a full 6%.
This market movement may seem chaotic and irrational; however, there is a justifiable reason for such a sharp decline. First, we need to put the extent of these new tariffs into context. During Trump’s first term, he increased tariffs on various products from various countries, raising the average U.S. tariff rate from about 2% to 4%. While this was a notable change, it was still relatively minor. In contrast, this new round of tariffs will increase the average tariff rate to 22%. The U.S. hasn’t had an average tariff rate above 5% since the 1970s, and the last time it was near 20% was in 1930. Tariffs at this level will have major implications for corporate earnings, inflation, and employment—virtually every sector of the economy has been affected. How long will these tariffs stay in place? How will other countries react? How will businesses adapt? All of these questions are likely to continue fueling market volatility. That said, this is not a recommendation for investors to abandon ship. Our economy has weathered a global pandemic, a financial crisis, wars, and many other catastrophic events. As long as an investor maintains a properly diversified portfolio, they will get through this. Given the likelihood of large daily market moves, we do not recommend trying to time this market. One small mistake in a volatile environment like this can have serious long-term consequences.
“Historic tariffs triggered sharp market swings, but a diversified portfolio remains the best defense against volatility.”
Chart of The Week
Our chart of the week once again comes from Torsten Sløk, the Chief Economist at Apollo Asset Management. It’s a very simple chart, showing the estimated impact of these tariffs on GDP and inflation. It’s worth noting that these estimates should be taken with a grain of salt—no one can predict the exact outcome. However, economists use statistical modeling to estimate the potential effects of policy decisions. If these numbers are even close to accurate, it makes sense that stocks dropped more than 10% in just two days. Lower GDP means less consumption, investment, and spending. Higher inflation means everything becomes more expensive. Neither is good for the economy.
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Note: Includes Chinese tariffs from February and March,Canada and Mexico non-USMCA compliant goods tariffs from March, Steel, Aluminumand Auto imports and reciprocal tariffs on all countries announced in April.
Source: Apollo Chief Economist
