Al Root

The stock market was slumping after President Donald Trump made his tariff announcement. To state the obvious, it was worse than investors feared and now they need to figure out what it means for stocks over the rest of 2025.

On Wednesday, President Donald Trump announced reciprocal tariffs at his "Liberation Day" event in the White House Rose Garden. According to the president, a minimum baseline tariff of 10% will be imposed on everyone, but additional "reciprocal" tariffs will be imposed as well on select countries. The new tariffs appear to be in addition to those announced on automotive imports and on China. Car imports are going to be taxed at 25%, as expected.

The SPDR S&P 500 exchange-traded fund was down 2.2% in after-hours trading. The reciprocal tariffs and the 10% baseline levy seem to have caused the drop. The Roundhill Magnificent Seven ETF was down 2.4%.

"President Trump just finished his tariff speech at the White House and we would characterize this slate of tariffs as 'worse than the worst case scenario' the Street was fearing," writes Wedbush analyst Dan Ives.

There is some reason for hope. The S&P 500 is down about 8% from recent highs, reflecting a lot of bad news. If things can turn around on Thursday, investors should watch the 5750 level in a rally. Getting through that "would certainly support the thesis that the worst of the correction is over," says Jason Browne, president of Texas-based investment advisory firm Alexis Investment Partners. He's optimistic that Wednesday means the market will move past "peak uncertainty."

But the downside looms as well, with 5500 perhaps the next support level. If nothing else, the announcement means that volatility will continue, says Venu Krishna, Barclays head of U.S. equity strategy. After tariffs, there are still questions about retaliation, inflation, consumer spending, and industrial production. Krishna recently cut his 2025 earnings estimates for the S&P 500 from $271 to $262, and monitoring scenarios that could wipe out 2025 earnings growth.

Krishna is staying positive on big tech stocks, though. PE ratios for Apple, Amazon.com, Alphabet, Meta Platforms, Microsoft, and Nvidia have fallen to about 24 times earnings, down 25% from a recent peak of 32 times, making the sector a good place to hide. Tech earnings will continue to grow and where else would you want to hide "if things go wrong?" Krishna asks rhetorically.

They're not doing so well in after-hours trading, however. Apple was down 6.1%, Amazon.com was off 5.1%, Alphabet had declined 3.3%, had fallen 4.6%, Microsoft had dipped 2%, Nvidia had dropped 4.9%, and Tesla had slumped 5.8%.

Sector rotation aside, some on wall Street sound cautiously optimistic despite the late Wednesday dip. "We would be wary of complete risk-off or go to cash approaches that constrain future growth participation," says Arnim Holzer, Global Macro Strategist at Easterly EAB Risk Solutions.

Still, the chances that something goes very wrong are high, as Holzer acknowledges. This was a "manufactured crisis," he says, one that means it can be resolved quickly -- or get worse.

Reciprocal tariffs leave room for negotiations, but also for more pain and uncertainty to come, according to Adam Hetts, global head of multi-asset at Janus Henderson Investors. "Eye-watering tariffs on a country-by-country basis scream 'negotiation tactic,' which will keep markets on edge for the foreseeable future," he writes. "We've seen the administration have a surprisingly high tolerance for market pain, now the big question is how much tolerance it has for true economic pain as negotiations unfold."

So far, the pain has been contained to the sentiment indicators, chances are they won't stay that way. "This is how you sabotage the world's economic engine while claiming to supercharge it," writes Nigel Green, CEO of deVere Group. "Trump is blowing up the post-war system that made the U.S. and the world more prosperous, and he's doing it with reckless confidence."

Something that seems to be lacking right now.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 02, 2025 17:48 ET (21:48 GMT)

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