President Trump’s global tariffs have caused stock markets around the world to experience significant declines, with the S&P 500 index briefly entering bear market territory for the first time since 2022 on Monday.
Despite the market downturn, Mr. Trump remains resolute in his stance, stating he has no intention of retracting the tariffs. He asserted that these tariffs would generate “billions of dollars” in revenue and claimed that other nations have been “abusing” the United States through their trade practices.
A bear market is defined as a prolonged downturn in the stock market, where a stock index closes at least 20 percent below its most recent peak. This threshold reflects widespread investor pessimism about the economy's future.
On Monday, the S&P 500 commenced trading lower, already down 17.4 percent from its last high on February 19. A closing loss of at least 3.1 percent on that day would confirm the entry into a bear market. Analysts from Morgan Stanley indicated that a more pronounced decline could occur, while Goldman Sachs lowered its economic growth forecast, citing an increasing risk of a recession in the U.S. next year.
Both the Nasdaq Composite Index and the Russell 2000, which tracks smaller companies more vulnerable to economic shifts, have already entered bear market territory.
For investors, declining markets can present opportunities, especially for those with long-term investment strategies. Historically, investing in diversified, low-cost index funds has proven effective across different market conditions. However, due to rising concerns regarding the potential repercussions of Trump’s trade policies, there is heightened volatility and uncertainty. Investors nearing retirement or with shorter timelines may choose to reallocate more of their assets into bonds, which have typically shown more stability during downturns.
The last bear market occurred in early 2020 due to the coronavirus pandemic, which led to a swift market decline. Federal Reserve intervention allowed markets to recover their losses within six months. A bear market was also experienced in early 2022, prompted by inflation fears and increasing interest rates. Historically, the S&P has entered bear markets 15 times since 1929, lasting an average of 18.9 months.
Bear markets can often precede recessions, although this is not always the case. Recessions, which the National Bureau of Economic Research defines as a significant and widespread decline in economic activity lasting more than a few months, typically result in job losses and broader economic contraction, such as seen in the summer of 2020.
Moving forward, Mr. Trump reiterated his calls for the Federal Reserve to decrease interest rates. Nevertheless, the Fed appears cautious about immediate intervention. Jerome H. Powell, the Fed chair, emphasized the need to evaluate the economic repercussions of the tariffs before taking action and warned that reducing rates might exacerbate inflation.
Additional tariffs introduced by Mr. Trump, scheduled to take effect this week, may further destabilize the markets. In response to reporters’ inquiries about market volatility and recession fears, Mr. Trump remarked that “sometimes you have to take medicine to fix something.”