The S&P 500 dropped to as much as 19% below its record high in April, as President Trump's tariffs dampened investor sentiment.
The index has suffered many sell-offs of that magnitude (or worse) throughout history, and each of them had unique triggers.
So far, 2025 has been a volatile year for the stock market. President Donald Trump held a press conference on April 2 where he announced sweeping new 10% tariffs on imported goods from nearly every country in the world, as well as a series of much higher "reciprocal tariffs" on goods from most countries. These import taxes rocked investor sentiment because they have the potential to stall America's economic growth.
By April 8, the S&P 500(SNPINDEX: ^GSPC) -- which was already down by more than 8% before Trump's announcement -- had slumped to 19% below its peak, just shy of the bear market threshold of 20%. However, it has since rebounded with a 10.8% gain from its low point for two reasons: First, Trump quickly placed a 90-day pause on the reciprocal portion of his threatened tariffs (except those on Chinese goods), and second, numerous countries have apparently begun to negotiate trade deals with the White House.
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Investors might be wondering what the S&P 500 will do next. Does its rebound have legs, or will the sell-off resume? Although it's impossible to say with certainty, history offers an indication of what might be around the corner.
Image source: Getty Images.
Short-term noise creates long-term opportunities
Trump's tariffs were the clear reason for the sell-off in the S&P 500, but every stock market crash throughout history had a unique identity. So you won't find many similarities between the events listed below, each of which triggered a decline of 20% or more in the S&P 500:
1973 to 1974: Soaring oil prices triggered an energy crisis, which coincided with the resignation of President Nixon due to the Watergate scandal. Economic shocks and political uncertainty are a brutal combination for the stock market.
1987: The S&P 500 plunged by 20% in a single trading session that was dubbed Black Monday as new computerized trading programs accelerated a sell-off that was originally triggered by rising interest rates and a decline in the value of the U.S. dollar.
2000 to 2002: The dot-com bubble drove some of the best returns investors have ever seen -- right up until 2000, when it burst and triggered a recession. The S&P 500 sank annually for three straight years.
2008: The housing bubble burst, creating a domino effect that led to defaults on subprime mortgages, and the collapse of derivatives like mortgage-backed securities. This culminated in the failure of several banks and a financial crisis.
2020: Governments worldwide met the COVID-19 pandemic with lockdowns and social-distancing restrictions that threatened to cause one of the worst recessions in history. Markets slumped. However, swift intervention by governments and central banks supported consumers and businesses, keeping economies afloat and spurring a rapid stock market rebound.
The S&P 500 made a full recovery after every one of those shocks. But some recoveries definitely took longer than others; it was seven years before the index reached a new high after the dot-com crash, whereas during 2020, the index plummeted by 35% and rebounded to a new record high in the span of just seven months.
Therefore, although the current situation feels unprecedented, investors who can look past the short term could make investment moves now that earn them significant rewards in the long run. Don't get me wrong -- earnings drive the stock market, and if Trump's tariffs and trade wars put the brakes on the global economy, companies will struggle to generate growth, or worse, will actually see their revenues and earnings shrink. That would not be good news for the U.S. stock market.
However, those headwinds are likely to be temporary. President Trump has temporarily paused some of the steep tariffs he enacted in early April, and his administration says it's close to announcing frameworks for future trade deals with allies like Japan and India. Negotiations are also ongoing with major U.S. trading partners in Europe.
But even if those negotiations fail to lead to meaningful deals and the tariffs persist, the midterm elections are coming up in 2026, when Americans will have an opportunity to vote new candidates into the House of Representatives and the Senate. If two-thirds of both Congressional chambers oppose the president's trade policies, they can be overturned.
Simply put, the trade issues can be resolved in several different ways, so the S&P 500 will almost certainly make a full recovery eventually.
Image source: Getty Images.
Déjà vu? The S&P 500 might recover sooner than you think
During Trump's first term in office in 2018, he imposed five sets of tariffs on America's trading partners, which affected around 12.6% of all imported goods. They included levies on imported steel and aluminum from every country in the world. Those tariffs contributed to a 19.8% decline in the S&P 500 during that year, so the present situation probably feels very familiar to investors who were in the market then.
Here's the good news: Various countries came to the table to negotiate with the Trump administration in 2018, which led to new trade deals and a series of tariff exemptions for certain imports. And in 2019, the S&P 500 surged by 31.5%, setting new record highs in the process.
Since we know trade deals are in the works right now, I think the recent 10.8% bounce in the S&P 500 could turn into a full recovery over the next year or so. There will be bumps in the road because the tariffs in their current form are likely to impact the financial results of many companies in the near term, but I would expect investors to look through those headwinds as long as Trump comes to new agreements on trade deals.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
