April 2, 2025, was a day that President Donald Trump referred to as “Liberation Day.” The U.S. government imposed reciprocal tariffs on many countries. The decision was to level the playing field for the country and help make U.S. companies more competitive against foreign rivals. For investors, however, it sparked fears that it would cripple profits, hurt demand, and lead to a sharp decline in stock prices.
But despite that initial fear, the stock market has done well over the past year. In fact, the S&P 500 (SNPINDEX: ^GSPC) has risen by an impressive rate of 16%, which is higher than its long-run average of 10%. And that’s even with the stock market already doing well in the two previous years. Between the market coming off some hot years, valuations being elevated, and the risk tariffs posed to companies, it seemed plausible that the market would have tanked. Why didn’t that happen?
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While widespread tariffs could have very well crippled many industries, the reality is that the situation has been evolving over time. President Trump has negotiated deals with countries and changed tariff rates along the way. It’s complex enough that The Motley Fool even has a tariff and trade tracker to help stay on top of it all.
Another reason why the market has proven to be resilient is that many companies also loaded up on products ahead of the tariffs, before higher prices would go into effect. But that doesn’t mean that prices won’t eventually start to rise and impact demand. Earlier this year, Amazon CEO Andy Jassy said that the company is starting to see “tariffs creep into some prices” on its online marketplace. The big question is just how big an effect that might have on consumer spending.
A year ago, it may have seemed like a forgone conclusion that the market would go into a tailspin and that the S&P 500 would crash. But it highlights why that type of thinking can be dangerous. Market conditions can change quickly, and it’s never just as simple as assuming that one or two factors will lead to such and such a performance in the markets. Getting out of the market due to fear of a crash would have cost you some impressive gains.
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