Markets Rally Doesn’t Mean Immunity from Tariff-Related Shocks, Investors Warn
Who’s afraid of a global trade war? Apparently, not Wall Street.
The S&P 500 closed just shy of a record high on Thursday after President Donald Trump directed his administration to explore reciprocal tariffs on a broad range of U.S. trading partners.
The rally signaled investor confidence that the impact of tariffs might be less severe than feared. “The bark is worse than the bite,” said George Young, partner and portfolio manager at Villere & Co., which manages $1.8 billion in assets.
Markets welcomed the news because the directive doesn’t impose immediate tariffs, easing concerns among investors and foreign leaders. Similar previous tariff-related actions have also turned out to be less severe than initially anticipated.
On Wednesday, the S&P 500 gained 1% to close at 6,115.07—just 0.1% below its record high of 6,118.71 set on Jan. 23. The Dow Jones Industrial Average rose 342.87 points (0.8%), while the Nasdaq Composite climbed 1.5%.
Earlier this week, Trump imposed a 25% tariff on all steel and aluminum imports, following earlier levies on Canadian, Mexican, and Chinese imports. However, tariffs on Canada and Mexico were quickly paused after commitments to strengthen border enforcement and combat drug trafficking.
Yet, a rising market doesn’t mean investors are shielded from future volatility. “This is the new norm,” Young told MarketWatch. “The market isn’t ignoring it—it’s digesting developments step by step, waiting to see what actually unfolds.”
The tariff dispute is far from settled. Reciprocal tariffs could be enacted within weeks or months, according to senior White House officials. While a broad 10%–20% universal tariff appears off the table, the administration’s country-by-country approach could result in even higher overall tariffs and increased consumer prices, noted Paul Ashworth, chief North America economist at Capital Economics.
Tariffs are just one of many economic uncertainties tied to Trump’s policies, said Matt Eagan, portfolio manager at Loomis, Sayles & Co., which oversees $389 billion in assets. “Tax cuts can boost spending but worsen the deficit. Immigration controls may tighten labor markets but drive up wages. Tariffs could dampen demand while raising costs,” Eagan explained. “Investors must look past the noise and focus on Trump’s objectives and constraints. His policies may seem like more bark than bite, but complacency is risky.”
That complacency could lead to a dangerous cycle, warned Christopher Smart, managing partner at Arbroath Group, which advises investors on geopolitical risks.
“If markets don’t react negatively, Trump may feel emboldened to push further,” Smart noted. “Tariffs are coming—it’s just a question of how high they’ll go. Given investors’ calm response so far, the president might be more inclined to test the limits.”
