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If you’ve built up the courage to check your portfolio lately, you might have felt a jolt. As of the time of this writing in April 2025, the S&P 500 has slid about 19% from its February peak, sparked by President Trump’s latest tariff policies. And the NASDAQ Composite is officially in a bear market, having fallen more than 20% from its peak in December 2024.
You’ll likely have seen lots of headlines screaming about recession and even global economic collapse, and you might even think that the world economy is about to fall apart. But let’s take a moment to zoom out — because if history is any guide, then maybe market drops like these are what should be expected when investing.
Downturns Are Normal
When you’re living through market drops or crashes, these moments of economic turmoil can feel both scary and catastrophic. But during these times, it’s worth taking a moment to put things in perspective.
First, stock sell offs aren’t rare. Since 1928, the S&P 500 has hit a correction — a drop of 10% or more from its recent high — roughly once a year, according to Morningstar data. Bear markets, those scary 20%-plus market drops, come less often, about every to 5 years.
You might be surprised to learn that since World War II, we’ve actually seen 24 corrections and 14 bear markets, per CFRA Research. What’s the average correction? A 14% dip, with a recovery to breakeven in just four months. Bear markets however, take longer — around 13 months to bottom out, and then 23 months to hit a new high. So although each bear market might feel abrupt and sudden, they can be expected.
But the market has always climbed back.
This latest tariff-driven drop has the S&P 500 now nearing bear market territory. A 19% drop stings, but over the last 150 years, we’ve weathered 19 bear markets, with declines ranging from 20% to a brutal 79% during the Great Depression.
The point is, we’re not in uncharted territory, and no, this time isn’t different.. Rather, it’s just the market playing out its cycles.
Source: Bloomberg
Big Drops and Big Bounces
As an investor, it’s important to recognize that major market drops often lead to big rebounds and bounces. Historically, the S&P 500 has frequently seen double digit gains within 12 months following sharp declines. Here are some examples:
2020 COVID Crash: After dropping 34% to 2,237 in March 2020, the S&P 500 soared 76% over the next 12 months.
Source: Morningstar
2018 Trade War: During Trump’s first term and trade war, following a 20% drop to 2,351 in December 2018, the market rallied 37% within a year.
2015 to 2016 China Stock Market Crash: From a low of 1,829 in February 2016, the S&P 500 rose 26.6% over the next 12 months.
2011 Debt Crisis: After a 21% decline to 1,099 in October 2011, the market climbed 32% within a year.
2008 Financial Crisis: From its bottom of 676 in March 2009, the S&P 500 surged approximately 68% over the next 12 months.
2000 Dot-Com Bust: Following a low of 776 in October 2002, the market gained 34% within a year.
How Bad Can Market Drops Get?
Evidence shows that bear markets typically see drops ranging from 20% to 35%, with varying averages depending on the time period.
For instance, Yardeni Research indicates an average decline of 37% for 22 bear markets since 1928. Here’s the spectrum of declines historically:
- 20% to 25%: These are sharp, like the 2018 Trade War (a 20% drop) or 2011 Debt Crisis (around 21.5% drop). They’re painful but often resolve quickly.
- 30% to 35%: Common in severe bear markets, such as the 2020 COVID Crash (34% drop) or parts of the 2000 Dot-Com Bust, which saw a 49% decline over two and a half years.
- 40% +: These are more rare and painful, like the 2008 Financial Crisis (57% drop) or the Great Depression’s 79% plunge. These are typically once in a generation events tied to systemic failures.
Downturn Examples and Recovery Times
Here are examples of past downturns, including peak to trough drops, duration, and recovery times, based on historical data:
| Event | Peak-to-Trough Drop | Duration | Recovery Time |
|---|---|---|---|
| 2020 COVID Crash | 34% | 22 days | Around 6 months |
| 2008 Financial Crisis | 57% | 17 months | Around 4 years |
| 2000 Dot Com Bust | 49% | 2.5 years | Around 6 years |
| 2018 Trade War | 20% | Around 3 months | Around 6 months |
Source: Yahoo Finance
Overall, the average recovery from major stock market crashes takes about two years. The 1929 crash took 25 years to recover, but the 2020 crash took just five months.
The point is that markets don’t stay down forever.
Also, human psychology influences how we look at investing in a big way, especially when markets take a downturn. During stock market crashes or bear markets, fear and uncertainty is what tends to dominate our decision making process because:
- We experience the pain of losing money far more than the joy of gaining it
- We tend to follow the crowd
- Recent events tend to carry more weight in our minds (recency bias)
On the flip side, buying stocks during a bull market or when prices are climbing feels more intuitive because:
- Rising stock prices supporting optimism
- FOMO (Fear of Missing Out)
- Confirmation bias
Buying on Stocks on Sale
As shown by the market data, the reason stocks tend to rebound after steep drops is because oversold stocks tend to drop beyond their fundamentals. And when the market eventually regains its senses, undervalued companies snap back sharply.
For long term investors, bear markets can be thought of as stock market clearance sales. They give you a chance to scoop up shares of top-tier companies at bargain prices.
In 2020, during the COVID-19 crash, tech giants like Apple and Amazon’s stock prices plunged 30 to 40%. If you were able to buy the dip at the bottom, you would have doubled your money by year end.
In 2011, during the U.S. debt crisis, JPMorgan’s stock dropped by around 41%, but then went on to double in value within a few years. Even broader downturns, like the 2008 financial crisis or the 2018 retail slump have followed this pattern: quality stocks get hammered, then they rebound.
As an investor, you’ll never have total clarity of what will happen. Investing takes a certain level of confidence and the belief that things will improve eventually. Although we can’t control the timing of when stocks will rebound, we can focus on how and where we invest, such as in high quality investments, and companies with strong balance sheets, steady cash flows, and a competitive edge.
And of course, actually pulling the trigger by buying when stocks fall.
The statistics have clearly shown that the rewards for sticking with a disciplined investment approach through market drops and bear markets are well worth it. From 1970 to March 2022, a $10,000 investment in the S&P 500 grew to $2.2 million, averaging 10.9% annual returns with dividends reinvested. That growth over the years weathered all types of risks and crises, such as: stagflation, tech bubbles, and financial meltdowns.
Source: Bloomberg
Warren Buffett in 2017, referenced Rudyard Kipling’s poem “If,” when he advised investors facing a falling market: “Keep your head.” No one can predict when corrections will come, he said, but those who stay calm and buy quality companies during oversold moments often come out ahead.
Buying the dip can be hard. For many of us, it feels unnatural to put our hard earned money at risk and to invest when others are panicking. But if you can train yourself to push past that discomfort, the payoff later on can be huge.
1 thought on “The 2025 Tariff Driven Selloff – Is This Time Different?”
I tend to believe this. However, we’ve also never had such gross negligence at the head of the world economy before either. This is intentional, self-inflicted harm driven by ego, unchecked power, and absolutely no one at the top who understands basic economic theory in how trade deficits, debt, and how world economies actually operate.
Now, will the end result be the same as in the past? Perhaps, but over what time period is a good question. In addition, the current crisis has extremely far reaching as-yet unknown consequences. This isn’t just wild speculation in dot-com stocks, a large subset of mortgages without adequate risk assessment, or a pandemic that would eventually turn similar to a flu once enough immunity got out there. We’re talking about every single thing in our lives skyrocketing in price, depressing the world economy, and combined with other policies, cutting back social safety nets for the most vulnerable to weather the storm.
So I think the better question isn’t whether stocks will rebound from today’s numbers 20 years from now. But rather, how much worse will things get, and what will the new-norm look like? After all, we haven’t even seen the devastating effects of the tariffs as of now; the market is simply reacting to news. Furthermore, we have no idea what the ramifications will be due to the loss of confidence in America as the global leader. For the first time in history, we have shown ourselves to be a vindictive, unreliable partner on the world stage. Why would the USD remain the world’s reserve currency after all of this? Why would other countries continue to pour trillions of dollars into American investment?
So, while no one can predict the future, I would argue this absolutely is different this time. It’s a new paradigm, a new world-order, where the US is rapidly losing its standing in the world economy. Instead of a global economic leader on trade, the US is becoming a pariah, an untrustworthy isolated nation that attacks its friends more than its enemies. Only time will tell what that means in the long run. However, I don’t think the ramifications of this can be compared to other isolated downturn events where our standing remained intact; this is much more far-reaching than that.
And, despite the massive losses of late, TSLA as one example is still trading at a 114x PE multiple; more than twice that of other auto makers, Apple (30x), and other massive companies. While I don’t endorse panic selling, there’s still a whole lot of room to slide before finding a bottom- especially if we do end up in a depression with unprecedented levels of tariff-driven inflation, homelessness, bankruptcies, unaffordable basic needs including food, etc. Because at the moment, that’s exactly where we’re headed.