The past couple of weeks have been tough for investors. All three major benchmarks -- the S&P 500 (^GSPC -1.22%), the Dow Jones Industrial Average (^DJI -1.55%), and the Nasdaq Composite (^IXIC -0.35%) -- have dropped, halting at least temporarily what looked like unstoppable momentum. All three indexes climbed in the double digits over each of the past two years amid optimism about a lower interest rate environment ahead and the promise of exciting new technologies including artificial intelligence (AI) and quantum computing.

In recent weeks, though, a few elements have shaken the market -- from certain economic data that's disappointed, like a drop in consumer confidence last month, to worries about how high-flying AI companies will continue to grow as quickly as they've done in recent years.

And one concern in particular has stood out: President Donald Trump's launch of tariffs on imports from China, Mexico, and Canada -- and those countries' moves to retaliate. The news has prompted investors to worry about the impact on U.S. companies' earnings and the economy, and that's weighed on stock performance. On Monday, the S&P 500 lost nearly 1.8%, posting its biggest daily drop since December. On Tuesday, it fell another 1.2%.

Now, as Trump's tariffs go into effect, should you really buy stocks? Let's take a look at what history has to say.

Image source: Getty Images.

What investors were hoping for

First, let's consider today's economic backdrop. We're coming off of a long period of interest rate increases, and investors were optimistic that rate cuts launched this fall would set the stage for more such moves and a lower rate environment ahead. This would make it easier for companies to invest and expand -- and for customers to buy their products and services.

But economic data hasn't been stellar in recent times -- for example, a measure of consumer confidence by the Conference Board last month slipped by 7 points to 98.3, posting its biggest monthly drop since August of 2021. And shares of AI bellwether Nvidia, the world's leading AI chip company, slipped about 17% over the past 12 days on concern about headwinds like government controls on chip exports to China and rising competition. All of this has set a grim stage for stocks, and President Trump's tariff plan didn't brighten the picture.

Now, let's take a look at the tariffs, ones that economists have suggested could lead to rising inflation -- something that would support maintaining high interest rates. Trump launched 25% tariffs on goods coming from Mexico and Canada on Tuesday, and he added an extra 10% tariff on goods from China -- early last month, he placed an initial 10% tariff on China. The Trump administration, when launching the tariffs, said they were part of an effort to combat the illegal flow of drugs such as fentanyl into the U.S. In response, Mexico, Canada, and China each announced retaliatory tariffs on U.S. goods.

Rising prices?

Target (TGT -3.00%) early this week offered an immediate example of how the move could impact a company and the economy. CEO Brian Cornell told CNBC that the retailer sources much of its produce in Mexico at this time of year -- this implies higher costs for the company unless it pushes those costs onto the consumer. Cornell said Target may increase prices on those items, such as avocados and bananas, as early as this week.

So, such tariffs could either weigh on the costs of certain companies that rely on imports, or if they try to pass those costs along to customers, potentially decrease sales. On top of this, higher prices here and there could weaken the consumer's buying power -- meaning consumers may rein in their overall spending. And that could impact numerous players, from e-commerce businesses to automakers and restaurants.

All of this suggests a difficult time may be ahead for many companies, but before hitting the panic button, it's important to take a look at what history has to show us. This isn't the first time companies have faced headwinds that put earnings growth in jeopardy. As recently as 2022, inflation was soaring, and that translated into higher costs for companies across industries. Rising inflation weighed on S&P 500 earnings per share at the time, as we can see in the chart, below, but earnings went on to recover.

S&P 500 Earnings Per Share data by YCharts

Some good news for investors

So, here's the first bit of good news: Trump's tariffs are a challenge that strong companies with solid financial situations should be able to manage -- even if they weigh on earnings initially.

Now, let's consider what history says about buying stocks during such times of turmoil. A look at the S&P 500's past performance shows us the index, even after the worst of times such as recessions in the early 1990s and 2000s and the subprime mortgage crisis in 2007, always has gone on to recover and eventually gain. That's our second bit of good news, and this trend dates back to the benchmark's launch as a 500-company index in the late 1950s.

^SPX data by YCharts

And that means, even during difficult market times, investors shouldn't completely avoid buying stocks. During down times, you may have the opportunity to pick up high-quality players at dirt-cheap prices -- as their share prices suffer during the short term, bringing down valuation. This is the moment to be on the lookout for quality companies trading for a bargain, as history shows us they won't stay down and out forever.

This reinforces the importance of investing for the long term -- as a quality company's successes over a period of years generally will outweigh the impact of tough periods and short-term challenges. That means the patient investor, by wisely investing during difficult times, can score a major win over the long run -- as history shows us has been done time after time.