Trump’s Trade Tariffs Spark Market Turbulence: S&P 500 Correction, Economic Risks, and Investor Fears

Market participants are closely monitoring developments ahead of an anticipated announcement around April 2nd, when President Donald Trump is expected to provide more definition regarding trade tariffs. This follows a period of significant market turbulence in 2025, where the S&P 500 experienced a correction, falling into that territory merely 22 days after reaching all-time highs. The index shed 9% from its peak before staging a partial recovery.

Concerns Over Tariff Severity

A primary concern revolves around the potential impact of tariffs levied on Mexico and Canada. Such actions could significantly affect the USMCA trade agreement, which was established during President Trump’s first term. Brett Ryan, a senior economist at Deutsche Bank Securities, highlights the considerable risks involved. He cautions that the most adverse scenario would involve a lack of intent to renegotiate the USMCA, potentially leading to severe economic repercussions for all three nations party to the agreement.

Potential for Historically High Tariffs

Analysis by the Fiscal Foundation suggests that the average U.S. tariff rate could climb substantially, from approximately 2.5% in 2024 to 8.4% in 2025. This would represent the highest level observed since 1946. Mr. Ryan further projects that should President Trump pursue a maximalist approach, tariffs might escalate beyond 16%. Such levels would echo those seen around the time of the Great Depression in 1938. This scenario could potentially dampen economic growth while simultaneously pushing inflation expectations higher, thereby increasing the likelihood of stagflation.

Gold and Fixed Income Gain Appeal Amid Uncertainty

The prevailing uncertainty surrounding tariffs and their economic consequences has prompted investors to seek refuge in safe-haven assets. Notably, the price of gold has surged past the $3,000 per ounce mark, achieving its 18th record high in 2025. Concurrently, bonds and various alternative assets are drawing increased investor interest.

Mixed Outlook for US Equities

Perspectives on the future trajectory of U.S. stocks remain divided. Some market analysts, including Tom Lee of Fundstrat, anticipate a potential recovery in equities following the April 2nd clarification, possibly led again by the prominent tech stocks often referred to as the Magnificent Seven. However, others maintain a more cautious stance. Venu Krishna, a strategist at Barclays, has revised his year-end target for the S&P 500 in 2025 downwards, from 6,600 to 5,900 points, suggesting limited upside potential from current valuations.

Rising Investor Pessimism

Sentiment among investors appears to be tilting towards pessimism. A recent survey conducted by Allianz Life Insurance indicated that 51% of respondents harbor fears of another significant market downturn, an increase from 46% previously. Furthermore, Savita Subramanian from Bank of America Securities has pointed out the emergence of “new bearish arguments for U.S. stocks,” citing factors such as political uncertainty and concerns over high levels of public debt.