‘Liberation Day’ is almost upon us—will it liberate the stock market bears? 

Per President Donald Trump, April 2 will be Liberation Day for the U.S., the day that large tariffs are placed on imported goods. The public already got a taste of what may be to come last week, when 25% tariffs were announced on all cars manufactured overseas, causing General Motors to fall 6.3% and Ford Motor to fall 2.8%. 

It’s a make or break moment for the stock market and no one, perhaps not even Trump himself, knows what’s to come. There’s hopes that the levies will be small and targeted in their execution, but also reports that the administration is considering placing 20% tariffs across the board. The latter is almost certainly not reflected in the S&P 500, which is down just 5% this year. The index was set for a lower open on Tuesday, with one day to go until Trump announces his plans.

For U.S. companies, the problem starts with earnings. Estimates for this year have slipped from about $272 at the start of the year to about $268 now, but high tariffs will almost certainly raise costs and eat into margins, suggesting that earnings have a lot more room to fall. And that is before any hit to profits if the economy should slow down as a result of Trump’s policies. 

There doesn’t appear to be many places to hide. The energy sector, up nearly 8%, has been the best performer this year, but is a tiny sliver of the stock market and likely underowned. Health care has gained 5%, but has been giving back gains in recent weeks and was also unloved heading into 2025. The consumer discretionary sector, home to Amazon and Tesla, and technology, with massive exposure to Apple, Microsoft, and Nvidia, are down more than 10%, and are doing most of the damage.

The question now: Is this a dip to buy? RenMac’s Jeff deGraaf notes that April is historically the second-strongest month for stocks, with the S&P 500 finishing higher nearly two-thirds of the time. He also points out that sentiment has gotten so bad that it’s “created good news in the positioning data.” Others aren’t so sure. 22V’s Dennis DeBusschere, who has been leaning bullish, wrote over the weekend that PCE data show consumers saving more, which suggests that “dismissing the consumer confidence data is harder and that negative feedback loop risk is higher than we thought. This does not mean a recession is now a base case, but the direction of travel is not encouraging.”

Perhaps April 2 will turn out to be a catalyst for the next rally, a sell the rumor, buy the news event, if you will. That seems to be what many are expecting, according to Nicholas Colas, co-founder of DataTrek Research. “From our perch in midtown Manhattan and many conversations with market ‘pros,’ we can tell you that there are expectations for a short-term rally in US stocks after the administration announces its reciprocal tariff regime on April 2,” he writes. “This will provide some much-needed clarity and perhaps even slow down the drip of daily news on the issue. Then, so this bullish thinking goes, the market narrative can finally shift to more business-friendly topics like tax cuts and deregulation.”

It certainly refuses to go down without a fight. The S&P 500 finished up 0.6% on Monday after being down as much as 1.7%, its biggest reversal since 2022. The Dow, meanwhile, rose 417.86 points, or 1%, after being down more than 400 points.

The folks at MI2 reserarch are worried investors are too optimistic. “Unfortunately, we fear that things could be about to get a lot worse,” they write. “That’s because the current stagflationary backdrop is kryptonite for equities. Moreover, we are starting to get worried about US investors, who believed they had a pro-Wall Street Administration and have yet to reduce their risk. As their anger and sense of betrayal builds, there is a risk that Liberation Day could trigger a real market flush.”

I sure hope that is not the case. Just don’t overlook the possibility that tariffs will be the shock that ends this bull market once and for all.