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The Trump administration's broad tariff rollout on April 2 has shaken the stock market. After artificial intelligence (AI) sparked an epic two-year run for the Nasdaq Composite, the bellwether technology-heavy U.S. market index has tumbled 20% from its high, the technical definition of a bear market.
First and foremost, don't panic.
The uncertainty can be unnerving, but try to stay calm and focus on the big picture. Times like this teach investors a lot, and this could be the most valuable takeaway, no matter what happens next.
Market volatility isn't new and is the price of long-term investing success
Turning the TV on or reading the newspaper during a market decline can be scary. But the truth is that this isn't anything new. Sure, it's easy to forget the last market downturn when stocks go on an extended run, but the reality is that stock prices go up and down, and it's healthy that they don't always go in one direction.
It's tariffs right now, but over the years, recessions, wars, pandemics, and elections have all rattled the markets at one point or another. The Nasdaq Composite fell nearly 80% in the early 2000s:
Yet, the market has recovered every time. Remember that investor emotions impact stock prices, sometimes leading to big moves up or down. But over the long haul, the market tends to follow business profits. U.S. companies have innovated and grown profits for generations, and the market has risen to new highs.
Whatever happens, the market will likely recover as long as companies continue to prosper and grow, as they have throughout history. The volatility isn't fun, but it's the cost of doing business.
Investors should focus on what matters most for stocks
There's a famous saying in the media industry: If it bleeds, it leads. The news channels and papers will focus on the market carnage, but obsessing over short-term prices can lead to sleepless nights and impulsive decisions. Successful long-term investing requires the right mindset and priorities.
Stocks represent living, breathing businesses, and share prices don't necessarily speak to the companies they represent. Think of yourself as a business owner, where the company's revenue, earnings, and future opportunities matter most.
Billionaire investor Warren Buffett has said, "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."
What might the world look like in 10 years?
Big-picture growth trends in e-commerce, cloud computing, digital advertising, artificial intelligence, robotics, and semiconductors will likely continue. The Nasdaq Composite index and its companies, such as the "Magnificent Seven" stocks, may tumble, but their strong presence in these various industries means the future is likely bright.