The S&P 500 is teetering on the edge of correction territory as investors wrestle with the fallout from President Donald Trump’s tariffs. The stock market has been battered recently, with mounting concerns about the effects of tariffs on trade and their potential to push the economy into recession.
As the market grapples with uncertainty, investors are left to decide whether to brace for a downturn or buy into current opportunities. In this post, we’ll break down the key factors driving the market volatility, explain how the tariffs are impacting the S&P 500, and discuss whether the market is heading into correction territory.
S&P 500’s Struggles: What’s Driving the Volatility?
On Tuesday, the S&P 500 index closed 0.8% lower, continuing its downward trajectory. With the index now sitting just a hair above correction territory (defined as a 10% drop from a recent peak), investors are closely watching how the market reacts to the unfolding tariff crisis. If the S&P 500 drops below 5,529.74, it will officially enter correction territory, marking a significant blow to investor sentiment.
Why is this happening? The answer lies in a series of trade tensions and tariff threats from President Trump. Tariffs, particularly on steel and aluminium imports, have caused uncertainty in the market, leaving many investors questioning the broader economic impact of these policies.
Trump’s Tariffs: Rising Fears and Mixed Signals
President Trump’s recent announcement on Truth Social regarding a 25% tariff on steel and aluminium imports from Canada further rattled investors. This additional tariff, which would bring the total tariff on Canadian metals to 50%, was initially seen as a major escalation. However, Trump later backed down after Ontario Premier Doug Ford agreed not to impose a 25% surcharge on electricity exports to the U.S. As a result, the tariff on Canadian metals will remain at 25%, much to the relief of many in the market.
This back-and-forth has created a sense of whiplash for traders, who are left uncertain about the long-term impact of these policy changes. The market’s volatile nature is driven by the unpredictability of Trump’s trade policies and the fear of escalating trade wars.
Investor Sentiment: A Reaction to Washington’s Policy Moves
Andrew Slimmon, a senior portfolio manager for Morgan Stanley, voiced concerns about the level of anxiety in the market. He explained that investors are focusing on the “dark side of tariffs,” fearing that they will result in higher inflation and economic slowdown.
However, Slimmon is more optimistic about the long-term outlook, suggesting that tariffs might not be as damaging as some fear. He stated, “I don’t think the goal of the administration is to drive the economy into recession.”
Still, there’s no denying that uncertainty is taking a toll on investor confidence. As the market continues to react to news out of Washington, the mood has shifted negative, and many traders are bracing for further volatility.
Tariff Concerns: A Barrier to Stock Market Rebound?
One of the critical concerns is the looming implementation of reciprocal tariffs set to take effect on April 2. These tariffs have investors worried that they could trigger a growth slowdown, further driving the S&P 500 deeper into negative territory. Slimmon notes that it could be difficult for the market to stage a major rally ahead of that date, given the persistent fears surrounding trade policy.
Despite these concerns, Slimmon sees potential in market opportunities. He suggests that when Washington’s actions cause a sell-off, it can create opportunities to buy fundamentally strong stocks at lower prices. This is when he believes investors should focus on the fundamentals and long-term potential of individual stocks, rather than being overly influenced by political headlines.
Is the U.S. Economy Heading Toward Recession?
Despite the growing volatility and anxiety, Slimmon does not foresee a U.S. recession in 2025. While he acknowledges that the Federal Reserve may have to adjust its policies in response to concerns about slowing growth, he believes that the central bank will act as a counterbalance to the negative market sentiment caused by tariffs.
This optimism contrasts with other experts, like Tom Essaye, founder of Sevens Report, who pointed out that if fears of a policy-driven slowdown don’t materialise, the market could return to a “fair value” range that offers opportunities for long-term growth.
The S&P 500’s Outlook: Navigating the Current Slump
Despite the recent struggles, the broader outlook for U.S. stocks remains uncertain. After a stellar performance in 2024, with the S&P 500 soaring 23.3%, and another 24.2% increase in 2023, the market has now lost 5.3% of its value in 2025. This sharp pullback has caused concern, but Essaye believes that if fears of a growth slowdown dissipate, the market could start to stabilise.
Yet, the recent pullback has created buying opportunities for some stocks, especially in sectors that are fundamentally strong. For instance, stocks of major Wall Street banks and some Big Tech companies, which have been hit hard in the sell-off, might present attractive investment opportunities.
Tech Stocks: Buying the Dip?
Big Tech has been hit especially hard in 2025, with stocks like Nvidia and the iShares Semiconductor ETF seeing significant declines. Nvidia, a leader in artificial intelligence chips, has dropped 19% so far this year. Despite this, Slimmon sees potential in these stocks, suggesting that some semiconductor stocks are more appealing today than they were just a few weeks ago.
While the Roundhill Magnificent Seven ETF, which includes tech giants like Apple, Microsoft, and Amazon, has dropped 14.5% year-to-date, Slimmon believes that these companies remain well-positioned for long-term growth, especially as AI and semiconductors become increasingly important to the global economy.
Final Thoughts: Volatility Presents Opportunity
Despite the ongoing concerns over tariffs and their potential impact on the U.S. economy, Slimmon remains optimistic that the market will recover. He suggests that investors should not panic during times of volatility but should instead focus on the fundamentals and consider the opportunities created by a market in correction.
The S&P 500 may be facing turbulence, but select stocks—especially in sectors like banking, technology, and semiconductors—could still offer attractive returns in the long run. In times of uncertainty, it’s essential to stay focused on long-term goals and avoid making rash decisions based on short-term market movements.
Relevant Links for Further Reading
- S&P 500: What You Need to Know
- Impact of Tariffs on the Stock Market
- Understanding Market Corrections
Photo credit: The Economic Times
