By Gunjan Banerji and Jack Pitcher

President Trump's tariff mania is rewriting the investing playbook.

Everyday Americans and Wall Street pros alike have long been accustomed to a steady ascent in U.S. stocks. Wading in to buy declines always seemed to pay off, often almost immediately. Moments of crises were met with a vigorous response from the U.S. government, ready to unleash stimulus and step in to calm markets.

Now, the Trump administration's tariffs are challenging the assumptions everyday Americans have clung to for the past two decades, testing their tendency to stay invested no matter how rocky markets get.

By one measure, it has been the worst year for the "buy the dip" strategy in almost a century. Investors who have stepped in to buy shares on sale have instead been stuck with bigger losses. The S&P 500 has dropped 1.3% on average this year in the week after a one-day loss of at least 1%, according to Dow Jones Market Data. That would be the biggest such decline on record, in data going back to the 1920s.

"It is a different world that we've got to navigate," said Christopher Marangi, co-chief investment officer of value investments at the money-manager Gamco Investors.

Trump's call for a 90-day pause on parts of his tariff plans drove a monster midweek rally in stocks. Still, investors say that they find themselves in uncharted territory and are navigating a market that looks unlike anything they have seen in their careers. The day after the rally, stocks were tumbling again.

Some are even asking themselves whether the U.S. will continue to be the best place to invest. At the start of the year, many were banking on another year of what they called American exceptionalism in the market, a wager that U.S. stocks would keep racing past others around the world.

Instead, everything from U.S. bonds to stocks and the dollar has been repeatedly hammered. Yields on 30-year Treasurys, which rise when bond prices fall, climbed for a fourth consecutive session to 4.849%. That marked the largest four-day yield increase since the onset of the pandemic in March 2020.

The S&P 500 is lagging behind an MSCI index tracking stocks around the world by more than 3 percentage points this year, on track for the biggest annual underperformance since 2009, according to Dow Jones Market Data. It has trailed only three other times in the past 16 years.

So why might the dynamics be different this time? For one thing, analysts point out that government intervention -- whether that was fiscal stimulus, massive Federal Reserve programs to calm markets or behind-the-scenes conversations with Wall Street leaders -- played a huge role in instilling confidence and kick-starting rebounds during past crises such as the pandemic selloff.

This belief has become so ingrained on Wall Street that it has come to be known as the Fed put, named after an option that can protect investors against stock declines. Now, the market turmoil is being caused by the government.

"The Fed 'put' has a much higher bar this time," said Rupal Bhansali, chief investment officer at Double Duty Money Management, who invests in stocks around the world. "If you're counting on it to bail you out, that's not a strategy."

Rather than being almost instantly rewarded, investors who have bought during the historic market swings this month have faced pain. Investors who braved the selloff to buy when the S&P 500 tanked almost 5% after Trump's Rose Garden announcement on tariffs had to stomach another drop of nearly 6% the next session.

The moves along the way have been dizzying too. The S&P 500 had up or down intraday moves of at least 4.9% in each of the past six trading sessions, the longest stretch since March 2020, making it tougher to hang on.

On average, the S&P 500 has slumped around 2% the week after one-day declines of at least 3%, on track for the largest such fall since 1998, according to Dow Jones Market Data.

So far, many investors are still piling in. While stock and bond markets fluctuated over the six trading sessions through Wednesday, investors plowed a net $43 billion into exchange-traded funds. ETF flows paint a picture of investors who are doing anything but panic. Vanguard's S&P 500 fund, Invesco's Nasdaq-100 fund and even a risky fund that offers triple-leveraged exposure to tech stocks were among the top asset gatherers.

In the five days leading up to Wednesday's massive rally, investors put an average of $10 billion a day into Vanguard's S&P 500 fund, around four times the average rate.

"There are certainly people saying, 'When confidence falls this much, when the market falls this much, it has always been a good buying opportunity, so I'm going to get in now,'" said David Kelly, chief global strategist at J.P. Morgan Asset Management.

Still, he said, "Don't make the bet that if these tariffs stay in place, somehow it's all going to be OK, because it's not," Kelly said. "If they stay in place, we are going to have a big U.S. recession, and we are going to have a global recession."

The mentality is a marked change from the years after the financial crisis, when the S&P 500 fell by half from the summer of 2007 to its early 2009 bottom and scarred a generation of investors. In 2011, surveys showed roughly twice as many Americans viewed gold as a better investment than stocks or mutual funds.

But the market started a long, slow rebound, boosted by a decade of ultralow interest rates. The S&P 500 gained 690% since it bottomed in March 2009 during the global financial crisis.

Now, even if the U.S. were to flip the switch on tariffs, Marangi said the lofty valuations that U.S. indexes have been rewarded with for years might be dragged down. The confidence of investors -- and trade partners -- has been dinged.

"At least some damage is done," Marangi said.

Write to Gunjan Banerji at gunjan.banerji@wsj.com and Jack Pitcher at jack.pitcher@wsj.com

(END) Dow Jones Newswires

April 10, 2025 21:00 ET (01:00 GMT)

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