The markets are facing a steep and sudden downturn. While bear markets aren’t new, the speed of this decline has caught many investors off guard—especially coming off near-record highs. So what’s behind the drop? And what might come next?
What’s Causing the Stock Market Decline in 2025?
The immediate cause of the decline is a sharp increase in tariffs. The U.S. government has recently imposed tariffs on a wide range of imports, bringing trade restrictions to levels we haven’t seen since the 1930s. In response, countries like China have retaliated with their own tariffs—sparking fears of a broader trade war.
Why Are Tariffs Bad for the U.S. Economy and Investments?
Tariffs act like a tax on imported goods. Companies facing these tariffs have two options:
- Absorb the higher costs, which reduces their profits.
- Raise prices for consumers, which fuels inflation.
Either way, the ripple effects are negative. Tariffs also disrupt global supply chains, especially for companies that rely on foreign-made parts. This can lead to product shortages, delayed production, and more inflation. All of this creates a shock to the economy—and the markets are reacting accordingly.
How Past Financial Crises Inform Today’s Market Reaction
We’ve seen economic shocks before, and markets have bounced back:
- The Covid-19 pandemic caused massive disruption and a steep market drop. But once the crisis passed, recovery followed.
- The 2008 financial crisis brought a historic market crash. But over time, markets and the economy rebounded.
Today’s situation is different in one key way: it’s driven by policy. That means policy can also drive the recovery. If government leaders choose to change course, the damage could be reversed more quickly than in past crises.
Is the U.S. Economy Strong Enough to Recover in 2025?
- Positive sign: The U.S. economy remains strong. Recent job growth is a good indicator of underlying resilience.
- Negative sign: Consumer confidence is slipping. As headlines focus on declines and volatility, public sentiment is weakening.
If trade policies ease, recovery could happen sooner. But the longer high tariffs stay in place, the more prolonged the recovery could become.
Long-Term Investing Strategy During Economic Volatility
Market declines are unsettling, especially when they happen fast. But as long-term investors, it’s important to stay grounded. History shows us that markets do recover—even after major shocks.
We believe this period of volatility is difficult but temporary. And just as we emerged from 2008 and 2020, we will adjust again.
Jordan Hickey is a CERTIFIED FINANCIAL PLANNER® professional and helps clients across Connecticut and nationwide create personalized financial plans. Based in Glastonbury and Wilton, CT, Jordan offers guidance on retirement, insurance, investments, and overall wealth management. Schedule a complimentary introductory meeting with Jordan.
Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice.