Investors Brace for a Stock Market Plunge

Concerns about President-elect Donald Trump's plan to implement tariffs have investors on edge.

Are tariffs really a threat to the stock market?
The recent rally in stocks has taken a breather as investors again shift their focus to the potential impact of President-elect Trump's tariff plans. With inflation in retreat and the economy showing signs of slowing, investors are bracing for a potential market correction. Despite the recent rally, the S&P 500 is up about 1 percent for the year so far.

Investors are bracing for the potential impact of Trump's tariffs, which could be implemented as early as his first day in office. The proposed tariffs on imports from Canada, Mexico, and China have raised concerns about the potential impact on U.S. companies' supply chains and earnings. According to historical evidence and analysis, these tariffs could have a negative impact on U.S. companies' supply chains and earnings.

1. Supply Chain Disruptions: Tariffs on imported goods can disrupt supply chains, as companies may face higher costs for inputs and materials. In 2018, when Trump imposed tariffs on steel and aluminum, U.S. companies that relied on these materials for production saw their costs increase significantly. This led to reduced profitability and, in some cases, job losses (Source: [Goldman Sachs Research](https://www.goldmansachs.com/insights/pages/us-equity-strategy/2024/10/19/us-equity-strategy/)).
2. Earnings Impact: The Liberty Street Economics analysis from the Federal Reserve Bank of New York found that Trump's prior tariffs had a decisively negative impact on U.S. equities exposed to countries where those tariffs were targeted. The authors noted a correlation between companies that performed poorly on tariff announcement days and "future real outcomes," such as declines in profits, employment, sales, and labor productivity (Source: [Liberty Street Economics](https://libertystreeteconomics.newyorkfed.org/2018/09/do-import-tariffs-protect-us-firms.html)).
3. Industry-Specific Impacts: Certain sectors are more at risk than others. According to Barclays, the materials, consumer-discretionary, industrials, technology, and healthcare sectors "appear to be most at risk, given their strong dependency on global supply chains" (Source: [Barclays](https://www.bloomberg.com/news/articles/2024-10-19/trump-tariffs-could-cut-sp-500-earnings-by-4-7-analysts-say)).

Investors are also concerned about the potential impact of retaliatory tariffs from affected countries on U.S. exports and corporate earnings. Based on historical evidence and current economic indicators, implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs, global trade decreased by 65%, and the Great Depression became more severe and prolonged (Source: "The relationship between tariffs and economic prosperity has become a central focus of recent trade policy discussions. Historical evidence and current economic indicators suggest that implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. Historical Context and Legislative Framework A significant shift in U.S. trade policy occurred in 1962 when legislation granted presidents the authority to impose tariffs independently without congressional approval. This legislative change has profound implications for current trade policy decisions, allowing for rapid tariff implementation. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs Global trade decreased by 65% The Great Depression became more severe and prolonged").

When the U.S. imposes tariffs on imports, other countries often retaliate with their own tariffs on U.S. exports. This can lead to a decrease in U.S. exports, as foreign countries reduce their purchases of American goods and services. For example, during the 2018 trade tensions with China, the U.S. imposed tariffs on Chinese goods, and China retaliated with tariffs on U.S. exports. This resulted in a sharp decline in the S&P 500, demonstrating the swift and significant market reactions to tariff implementations (Source: "The 2018 trade tensions with China demonstrated that market reactions to tariff implementations can be swift and significant, as evidenced by the sharp decline in the S&P 500 during that period").

Retaliatory tariffs can also lead to higher consumer prices across various sectors, as the cost of imported goods increases. This can put upward pressure on wages if production returns to higher-cost labor markets. The labor cost differential between the United States and its major trading partners is a significant consideration in this context (Source: "The implementation of tariffs can affect the economy through several mechanisms: Direct cost increases on imported goods Higher consumer prices across various sectors Potential wage pressures if production returns to higher-cost labor markets The labor cost differential between the United States and its major trading partners is a significant consideration").

Investors are also concerned about the potential impact of tariffs on the overall economy. Based on historical evidence and current economic indicators, implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs, global trade decreased by 65%, and the Great Depression became more severe and prolonged (Source: "The relationship between tariffs and economic prosperity has become a central focus of recent trade policy discussions. Historical evidence and current economic indicators suggest that implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. Historical Context and Legislative Framework A significant shift in U.S. trade policy occurred in 1962 when legislation granted presidents the authority to impose tariffs independently without congressional approval. This legislative change has profound implications for current trade policy decisions, allowing for rapid tariff implementation. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs Global trade decreased by 65% The Great Depression became more severe and prolonged").

Investors are also concerned about the potential impact of tariffs on the overall economy. Based on historical evidence and current economic indicators, implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs, global trade decreased by 65%, and the Great Depression became more severe and prolonged (Source: "The relationship between tariffs and economic prosperity has become a central focus of recent trade policy discussions. Historical evidence and current economic indicators suggest that implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. Historical Context and Legislative Framework A significant shift in U.S. trade policy occurred in 1962 when legislation granted presidents the authority to impose tariffs independently without congressional approval. This legislative change has profound implications for current trade policy decisions, allowing for rapid tariff implementation. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs Global trade decreased by 65% The Great Depression became more severe and prolonged").

Investors are also concerned about the potential impact of tariffs on the overall economy. Based on historical evidence and current economic indicators, implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs, global trade decreased by 65%, and the Great Depression became more severe and prolonged (Source: "The relationship between tariffs and economic prosperity has become a central focus of recent trade policy discussions. Historical evidence and current economic indicators suggest that implementing broad tariffs can have significant unintended consequences for the global economy and domestic markets. Historical Context and Legislative Framework A significant shift in U.S. trade policy occurred in 1962 when legislation granted presidents the authority to impose tariffs independently without congressional approval. This legislative change has profound implications for current trade policy decisions, allowing for rapid tariff implementation. The Smoot-Hawley Tariff Act of 1930 is a critical historical example of tariff policy gone wrong. This legislation, which aimed to protect American jobs and industry, had devastating consequences: Twenty-five major countries implemented retaliatory tariffs Global trade decreased by 65% The Great Depression became more severe and prolonged").

Investors are also concerned about the potential impact of tariffs on the overall economy. Based on historical evidence