The S&P 500 is down just under 5% year -to-date (though up 6.8% over the past 12 months).  Investors are clearly rattled about the uncertainty of waging escalating trade wars on America’s biggest trading partners, and there are additional concerns that the trade barriers being erected in retaliation could lead to a steeper downturn.

Before this most recent downturn, we experienced another brief economic downturn during the early stages of the Covid pandemic, but outside of that blip, the economy has experienced unusually smooth sailing for more than a decade.  Some say we are overdue for that steeper downturn.

Overdue is not destiny, of course.  Before the trade wars and the DOGE initiatives in the U.S. federal government, it looked to many as if the U.S. Federal Reserve had managed to execute a smooth economic landing, and this could still happen. There is no evidence that companies, even if they “must” raise prices to pay for the friction caused by tariffs in their cross-border supply and manufacturing chains—are any less valuable today than they were weeks ago.  And indeed, one explanation for the recent selloff had nothing to do with valuations; the Fed backed off from cutting interest rates as aggressively as some bull market investors had expected.

If we do experience a correction in the markets, it basically means that stocks will have gone on sale, generally for emotional (fear) rather than rational reasons.  Those sales events typically do not last long—the last “bear market”, in the first quarter of 2020, lasted just 33 days, and the average since 1929 has been roughly nine months.  Most investors are inclined to sell their stocks during these times of fear and uncertainty, but history has shown that buyers who are capable of swimming against the tide end up with higher returns in the long run.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.