Stock market and economic downturns are never fun, but they are the price of admission for participating in, and benefitting from, economic growth. Downturns are also rarely caused by one specific thing, and instead are the result of a series of events converging at one time.

The final convergence that sparked the current downturn occurred at 4pm on April 2, 2025, when Trump announced his tariff plan – which was more extreme than anyone expected.

‍

What is most important is the convergence of events, however, and not the tariffs themselves. What converged exactly?

1. Understandable economic frustration leading to the election of a Populist President.
2. The populist President, in an attempt to fulfill two major campaign promises (economic prosperity and tax cuts that don’t increase the federal deficit), frames tariffs as the solution.
3. The magnitude of the tariffs needed as the primary policy mechanism to accomplish both objectives are untenable.
4. Loyalist in advisory roles fail to mention the flaws in the proposed plan, and go ahead with an unrealistic approach.

Put these four things together, and you get a historic three day decline in equity markets.

Where do we go from here?

Anyone pretending to know what markets will do in the short-term is fooling themselves. Policy proposals should also be given the benefit of the doubt, while recognizing the difficulty of accomplishing anything with a long-term payoff. It is also fair to call the market reaction to this policy nightmarish and a clear sign that it needs significant adjustment.

While steps are available to provide clarity to markets (transparency on negotiation goals, congress exercising their commerce powers, etc.), they currently seem unlikely due to Trump’s focus on trade deficits in calculating tariff rates instead of targeting specific unfair trade practices.

From a historical perspective, US trade deficits have served as the plumbing for the global economy. We ship out more dollars than we collect, other countries keep those dollars, and we get to be the reserve currency – granting us significant economic freedom and a seat at every geopolitical negotiating table for the past 80 years. While eliminating trade deficits seems attractive at face value, it is very difficult to accomplish, in addition to villainizing a major contributing factor to both the success of our economy and influence post-World War 2.

While tariffs can lend a helping hand to Trump’s agenda, they should be measured and paired with other tools (specifically reductions in fiscal spending) to meet the his policy goals. What is certain is that any such proposal, whether tariffs or austerity, will have short-term pain – which isn’t something politicians tend to benefit from.

Reading this, you may wonder, what are the positives? Downturns of this magnitude have occurred ten times since 1950, and here is what happened next:

‍

Buying opportunities NEVER feel like buying opportunities in the moment. No matter how bad this downturn feels, it too shall pass. As for me, I will stick to my plan, buy stocks when my plan calls for it, and stay the course.

‍

Disclosure:

This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

Frankly Finances is a registered investment advisor with the Securities and Exchange Commission (SEC) and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure brochure for additional information regarding the qualifications and business practices of Frankly Finances.

‍