Earlier this month, President Donald Trump took a battering ram to the global economic order.
He announced that the U.S. would impose tariffs across the world. The proposed tariffs targeted every country that we trade with – and some that we don't.
Investors knew that new tariffs were a possibility. It was a big reason why stocks sold off before the announcement.
But the actual plan was more sweeping and aggressive than anyone imagined... And although Trump has since announced a 90-day pause on most tariffs above his 10% baseline, folks are still uncertain about the future for the markets.
Stocks collapsed after the announcement. We saw a 10.5% decline over two days – one of the worst two-day stretches in history.
Panic has gripped investors. But according to history, this massive decline won't last forever. It could even lead to a major rally.
Let me explain...
Markets hate uncertainty. And President Trump's tariff announcement was easily the biggest uncertainty-creating event since the COVID-19 pandemic rocked the markets in early 2020.
The unknowns spiral out in every direction...
Will these tariffs actually hold once the 90-day pause ends, or are they just a bargaining chip? What happens if we pull them back for good? What does the global economy look like if we don't? And with all of these possibilities... what the heck does it mean for the stock market?
With so many questions, it's no wonder stocks crashed more than 10% after the announcement... pushing the S&P 500 Index near a one-year low. Take a look...
If you've been in the markets for a long time, you know corrections are normal. Stocks go up and down. It's part of the deal with risky assets.
This Rare Stock Market Fall Points to Double-Digit Gains
Still, this kind of decline is far from normal. It's actually incredibly rare.
To see it, I looked at every two-day decline of 10% or more since 1950. Over nearly 75 years, that kind of slide has only happened three other times. And surprisingly, all of those cases were fantastic times to buy. Take a look...
The obvious caveat is that our sample size is small. When a setup is this rare, it's hard to draw strong conclusions. But the data we do have is clear...
Stocks have never crashed this much at the beginning of a major bust... They've always done it near a major bottom.
Our three instances were during the 1987 "Black Monday" crash... during the financial crisis in November 2008... and in March 2020. All three periods were generational buying opportunities. On average, stocks were up 33.4% a year later. And they soared 52.4% over the next two years.
This doesn't mean we've definitely seen the bottom already. I expect we could see more pain, as there's still plenty of uncertainty to shake the markets from here. But according to history, this kind of washout is a good sign for future returns.
Of course, you want to wait for the uptrend before buying. But once it starts, be ready to act. History says prices could absolutely soar.
Good investing,
Brett Eversole
Further Reading
"We should expect more volatility to come," Sean Michael Cummings writes. We don't know how the tariffs will play out – or how they'll affect stocks and the economy. But one tool can help keep your portfolio safe when markets turn volatile... Read more here.
"Moments like this – right now, today – are when you earn your keep as an investor," Brett says. Folks are fearful today about the state of the markets. But in fact, panic selling is the wrong move – because you have one key edge on your side... Learn more here.
