S&P 500 Recovers Half of Its Tariff Decline. What It Will Take to Make It All the Way Back

The S&P 500’s dramatic plunge in early April 2025—a result of President Trump’s sweeping tariffs—prompted a historic sell-off. But by mid-April, the index clawed back roughly half its losses, rallying 9.5% in a single day as markets digested a temporary tariff pause. While this rebound offers hope, the path to full recovery remains fraught with geopolitical, economic, and policy risks. Let’s dissect the current state of the market and what it will take to erase the scars of the trade war.

The Recovery So Far: A Fragile Rebound

The S&P 500 tumbled to 4,982.77 on April 8—just shy of a 20% bear market correction—before rallying to 5,525 by April 25. This partial recovery, however, still leaves the index 7.2% below its February peak and 9% below its year-to-date starting point. The April 9 surge was fueled by Trump’s last-minute decision to delay tariffs for most nations, excluding China, where rates surged to 125%.

Despite the rebound, the market remains fragile. Volatility persists as investors weigh unresolved trade tensions, Federal Reserve policy uncertainty, and weak consumer sentiment.

Four Pillars to Full Recovery

For the S&P 500 to regain its pre-tariff highs, four critical factors must align:

1. Trade Deal Progress with China

The S&P 500’s 2025 decline was exacerbated by 125% tariffs on Chinese imports, the highest since the Smoot-Hawley era. A full recovery hinges on resolving this standoff. Historically, markets rebounded swiftly from similar shocks: the 2020 pandemic crash took 83 days to recover, while the 1987 crash required 557 days. The difference? In 2020, coordinated global policy action stabilized markets. Today, a trade truce—even a temporary one—could trigger a similar rally.

2. Federal Reserve Policy Clarity

President Trump’s public clashes with Federal Reserve Chair Jerome Powell—threatening his “termination”—have clouded monetary policy expectations. The Fed’s independence is a pillar of market stability. If the White House continues to meddle, investors may flee equities, prolonging the downturn. A clear signal of steady rates or a pause in hikes would provide the confidence markets crave.

3. Corporate Earnings Resilience

Tech giants like Alphabet (up 5% post-earnings) have outperformed, while Intel (down 5% on weak guidance) highlights sector-specific risks. The S&P 500’s recovery will depend on broader earnings strength. If Q1 results from companies like Tesla and Lockheed Martin exceed expectations, the rebound could accelerate.

4. Consumer Sentiment and Spending

The S&P 500’s long-term health is tied to U.S. consumers, who account for 70% of GDP. Current consumer sentiment (50.8) is stagnant, and rising tariffs threaten to squeeze household budgets. A rebound in sentiment—and spending—will be critical to sustaining the rally.

The Path Forward: Risks and Opportunities

While the S&P 500’s partial recovery is encouraging, the road to full recovery is littered with pitfalls:

• Geopolitical Risks: Escalating trade wars or Middle East tensions could reignite volatility.
• Policy Uncertainty: The Fed’s next move and White House rhetoric remain unpredictable.
• Valuation Pressures: The S&P 500’s Shiller CAPE ratio (35.61) sits above its historical average, suggesting limited upside if earnings disappoint.

However, the market’s inherent resilience offers hope. Since 1957, every S&P 500 correction has been followed by a rebound, often within months. The 2025 drop’s current pace—9.5% in one day—mirrors the rapid bounce-back seen in 2020.

Conclusion: Patience and Policy Will Decide the Outcome

The S&P 500’s 50% recovery is a sign of investor optimism but not yet a green light to celebrate. Full recovery requires:

1. Trade Resolution: A deal with China to reduce tariffs, even incrementally, would erase a key overhang.
2. Fed Stability: A clear policy path from the central bank to avoid market whiplash.
3. Earnings Strength: Tech and industrials must lead the charge, while consumer sectors stabilize.

History shows markets recover, but the speed depends on resolving today’s crises. With the index at 5,525 (as of April 25), the S&P 500 is halfway back—but halfway to where remains unclear. Investors should prepare for more volatility, but also recognize that resilience is baked into the DNA of this market.

The next few months will test whether this partial rebound is a false dawn or the first step toward a lasting recovery. The answer lies in Washington, D.C., and boardrooms across the globe.