Tariff Turmoil and Stock Market Mayhem
- Gradragstoriches
- 5 days ago
- 6 min read
Hold onto your hats! The last few weeks in the stock markets have been less of a gentle ride and more like a white-knuckle rollercoaster. If you blinked, you probably missed a massive swing. So, what’s been driving this chaos?
The Tariff Trigger
The main headline? U.S Tariffs. News around April 4th about potential sweeping US import tariffs, dubbed "Liberation Day" by President Trump, sent shockwaves throughout global markets.
Wall Street got whacked: The Dow Jones saw one of its biggest ever single-day point drops. The broader S&P 500 plunged, and the tech-heavy Nasdaq took such a beating it officially entered a 'bear market' (that’s a 20% drop from its recent high).
Investors freaked out, believing these tariffs could slam the brakes on economic growth, make everything more expensive (hello, inflation!), and shrink company profits. Even the "Magnificent Seven" tech stocks shed $trillions in combined value during the initial panic.
What followed was not a calm assessment, but pure, unadulterated ‘fear and greed’, causing massive volatility. Markets bounced around like rubber balls. Huge losses one day, massive gains the next, sometimes even flipping dramatically within hours! Rumours (like a potential 90-day tariff pause that turned out to be fake news) sent markets soaring, only for reality or retaliatory threats (like China hiking its tariffs) to pull them back down. Followed by a real 90-day tariff pause…etc, etc, etc. This was The Donald Trump Reality Show!
The UK was not immune. While the FTSE100 experienced its own rollercoaster, it sometimes held up a bit better than the US markets. Gold did well as investors piled into traditional 'safe havens', pushing gold prices to record highs. But overall, uncertainty ruled.
Why Trying to Time This Chaos is a Terrible Idea
Seeing those huge swings, the temptation to sell equity and jump out is massive. But here’s why it’s usually a losing game:
1. It's Basically Impossible: Seriously.
Predicting short-term market moves consistently is like trying to predict next week's lottery numbers. There are just too many unpredictable factors: economic data releases, surprise geopolitical events (like those on/off tariffs!), company earnings news, shifts in investor mood, central bank decisions... the list goes on.
Even the pros with supercomputers and PhDs struggle to get it right consistently. Think back to the 2008 crash or the 2020 COVID plunge – did anyone perfectly predict the timing of the falls and the lightning-fast rebounds? Many who sold in panic missed the best recovery days.
2. Missing the Best Days Wrecks Your Returns: This is crucial.
Studies consistently show that a huge chunk of the market's long-term gains comes from just a handful of its best-performing days. A J.P. Morgan study looking at the S&P 500 (1999-2018) found that if you stayed fully invested, you got a 5.6% average annual return. Miss just the 10 best days in that 20-year period? Your return plummeted to 2.0%.
Miss the 20 best days? You actually lost money.
The kicker? These best days often happen right after the worst days, exactly when fear makes you want to be sitting on the sidelines. Trying to dodge the dips often means you miss the rocket launch back up.
3. Emotions Become Your Worst Enemy.
Market timing forces you to make decisions based on gut feelings, which usually means fear and greed:
Fear: Market tanks - "Help! Sell everything before it goes lower!" - You lock in losses.
Greed: Market soars - "FOMO! Buy now before it goes even higher!" - You buy near the peak.
This cycle of selling low and buying high is the opposite of what you want. Discipline and long-term planning beat emotional reactions every time.
Time in the Market, not Timing the Market!
A Smarter Playbook
Okay, so market timing is out. What should you be doing, especially when you have time on your side?
Question: How have you felt during this market turmoil? How are you reacting? Are you losing sleep?
If the current market situation feels worse than you anticipated when you initially chose your asset allocation, it might be a sign that your portfolio is too aggressive for your tolerance.
On the other hand, if you are invested in a conservative portfolio, or have a long time horizon, and find yourself psychologically sailing through the downturn, it could indicate that you have the capacity to take on more risk.
While financial plans should be constructed to withstand the effects of short-term market volatility, if a change is warranted due to altered circumstances or goals, it's better to identify this sooner rather than later.
Regardless of the prevailing narrative, the goal should be to maintain an asset allocation that you can stick with through both good times and bad. Selling investments in fear when markets are down is one of the surest ways to sabotage your long-term returns.
If living through a stock market drop has proven to be an excessively painful experience, it might be a prudent time to ask yourself if you were taking on too much risk from the outset:
1. Figure Out Your Risk Tolerance (and Use Bonds!).
How much of a drop can your portfolio take before you start losing sleep and making rash decisions? Knowing this helps you build the right investment mix, and this is where bonds and cash come in.
While stocks offer higher growth potential (and higher volatility), bonds are generally more stable. Having an appropriate amount of bonds in your portfolio acts like a shock absorber during market crashes. It cushions the blow, reduces the overall volatility of your portfolio, and crucially helps stop you from panic-selling your stocks at the worst possible moment.
A younger investor might have a higher stock allocation (e.g., 80% stocks, 20% bonds) for growth, while someone closer to retirement might have more bonds (e.g., 60/40). The key is finding a balance you can stick with.
2. Flip the Script: Market Dips Are Your Friend!
This is the massive advantage young investors have: time. When the market drops, don't see it as a disaster; see it as a sale. Stocks are suddenly cheaper! If you continue investing during downturns, every pound you put in buys more shares than it did when prices were high.
When the market eventually recovers (and historically, it always has over the long term), those extra shares you scooped up on the cheap amplify your gains. Welcome bear markets – they are prime accumulation opportunities!
3. Dollar-Cost Averaging: Your Automatic Pilot.
This is arguably the simplest and most effective strategy to combat timing temptations and benefit from volatility. Dollar cost averaging means investing a fixed amount of money at regular intervals (e.g., £100 every month) regardless of what the market is doing:
When prices are high, your £100 buys fewer shares.
When prices drop (like recently!), your £100 automatically buys more shares.
Over time, this averages out your purchase price and drastically reduces the risk of investing a large sum right before a crash. It takes emotion out of the equation and turns market dips into an automatic advantage. It’s the perfect strategy for steadily building wealth through all market conditions.
The Bottom Line
The last two weeks were wild, and the future is likely to be the same. Seeing your investments swing down is never fun, but trying to cleverly dance in and out of the market based on gut feelings or scary headlines is a path fraught with peril.
Instead of aiming for impossible perfection, focus on what you can control:
Stay Invested: Time in the market beats timing the market.
Keep Investing Regularly (Dollar cost averaging): Turn volatility into your ally.
Diversify: Don't put all your eggs in one basket. Own a mix of assets - Global index funds of stocks and bonds that align with your risk tolerance.
Embrace the Long Game: Remember, investing is a marathon, not a sprint. Those market dips look scary now, but history shows that patient, disciplined investors are rewarded over decades.
Navigating markets like these takes discipline, but by sticking to a sensible long-term strategy, you can ride out the turbulence and position yourself for success down the road.
Keep calm and carry on investing!
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