Trump Tariffs Spark 1.5% S&P 500 Drop, 10% ETF Decline

In the wake of President Trump's tariff policies, the U.S. market has been in turmoil, with the Federal Reserve's reluctance to intervene exacerbating the situation. This has led to a collective collapse of once-star-performing funds on Wall Street, as various investment strategies have failed across the board.

The impact of the tariff storm has been severe, with all asset classes, from large-cap stocks to small-cap stocks, from cryptocurrencies to corporate bonds, experiencing a sharp decline in returns. This marks a significant shift in the investment landscape, as the U.S. market, once seen as a safe haven, is now facing unprecedented challenges.

Investment managers are grappling with one of the most disruptive economic policy shocks in decades, which could fundamentally alter the consumer and business ecosystem in the U.S. As corporate America sounds the alarm on earnings, market risk appetite has waned, and M&A activity has slowed. Traders are flocking to safe-haven assets like cash and gold, which have seen significant inflows.

Richard Cook, co-founder of Cook & Bynum Capital Management, noted, "People used to think the U.S. had no political risk, macroeconomic risk, or geopolitical risk, making it a global safe haven for capital. But the policy changes under this administration are shaking that perception."

Despite the turmoil, some funds have managed to thrive. For instance, a fund that focused on companies in Mexico, Chile, and Germany saw a nearly 14% increase in 2025, placing it in the top 2% of U.S. funds, a stark contrast to its poor performance in 2024. This "comeback" story is not unique; many funds that performed well this year had previously struggled.

From high-flying tech stocks to digital asset trading, ETFs that saw gains of up to 150% last year have taken a nosedive in 2025. The Grayscale Bitcoin Trust ETF, which surged over 100% in 2024, has fallen nearly 10% this year. The Invesco S&P 500 Momentum ETF, which rose 45% in 2024, has declined 7% in 2025. The Defiance Quantum ETF, which jumped around 50% last year, is now down more than 10%.

Federal Reserve Chairman Jerome Powell's recent statements have dashed market hopes for a quick recovery from the April turmoil. Powell warned that rapidly evolving trade policies could fuel inflation, making it difficult for the Fed to provide relief. Trump's subsequent call for Powell's dismissal has intensified the market drama, with investors bracing for a prolonged period of uncertainty.

The impact of the tariff storm has been widespread, affecting all asset classes, including tech stocks and corporate bonds, which were still performing well in January. The S&P 500 index has fallen 1.5% this week, with nine out of the past 12 weeks seeing declines. The dollar index has dropped 0.7% this week, with a year-to-date decline of over 6%. The bond market's volatility has remained high since the election.

Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, commented, "People are anxiously questioning whether the U.S. is still the same country it used to be. Traditional safe-haven assets have failed to provide shelter this time, even defensive stocks like the 'Magnificent Seven' have faltered."

Several countries have intensified negotiations with the U.S. to avoid the high tariffs imposed on around 60 trading partners. While these efforts have provided temporary relief, the World Trade Organization has downgraded its annual forecast, predicting a 0.2% decline in global trade volume for 2025, down from a potential 3% increase without new tariffs.

In response to the market turmoil, investors are seeking refuge in international investment strategies, value stocks, and traditional safe-haven assets like bonds and precious metals. The SPDR Gold ETF has become one of the top-performing ETFs in the U.S. this year, with net inflows of $84 billion, surpassing the Invesco QQQ Trust, which tracks the Nasdaq-100 index.

Investors are also flocking to short-term bond ETFs. The iShares 0-3 Month Treasury Bond ETF has attracted around $140 billion this year, surpassing its five-year record. Similarly, the SPDR 1-3 Month Treasury Bond ETF has drawn nearly $130 billion. Both ETFs have seen inflows far exceeding those of the iShares S&P 500 ETF, which has fallen 10% this year but remains popular.

James St.Aubin, chief information officer at Ocean Park Asset Management, which manages $50 billion in assets across 12 trend-following strategies, has shifted to a cash-heavy position. His trend-following strategy model turned negative in early April, leading to significant reductions in stock and fixed-income holdings, with cash allocations rising to 40-100%, the highest level since 2022. "I am pessimistic," he said. "There is a lack of positive news to drive consumption and investment, and the market is frozen, which often leads to a downward spiral."

Scott Piper, chief portfolio manager of the DWS Latin America Equity Fund, has benefited from the volatility. His fund, which plummeted 28% in 2024, has rebounded 13% in 2025, driven by the weakening dollar. "The immediate priority is to rebuild the credibility of the U.S. market, which is already under scrutiny due to massive deficits and slowing growth," he noted.