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By Andrew Stanton
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The U.S. stock market has been on a roller coaster since President Donald Trump returned to the White House earlier this year, dropping precipitously over the last three weeks. That contrasts from his first term in office when U.S. indexes performed well in the early days of his administration.
Newsweek reached out to the White House for comment via email.
Why It Matters
Trump campaigned heavily on the economy, touting his plans to bring down costs and restore U.S. manufacturing jobs. But nearly two months into his second term, prices of goods ranging from a carton of eggs to a new home remain high as polls suggest voters turn on Trump's economic plans.
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The stock market, one key indicator of the U.S. economy that the president has long used as a barometer of his success, has been particularly volatile since Trump returned to office, illustrating how investors are responding negatively to some of his economic policies like on-again, off-again tariffs on Canada and Mexico.
Trump has said he inherited a poor economy from his predecessor, former President Joe Biden, and has declined to rule out the possibility of a recession this year. He told reporters on Tuesday that he didn't see a recession coming, somewhat softening earlier comments that sparked this week's sell-off.
What to Know
The S&P 500 is down more than 7 percent, while the Dow Jones Industrial Average had dropped more than 6 percent from one month earlier as of Tuesday's close. All of the market's gains post-election, when investors were more optimistic about a second Trump term, have been erased.
This is a stark contrast from Trump's first term in office, when the stock market fared quite well through his full term. At the same point in his first administration, the market had grown about 4 percent.
By the end of 2017, the S&P was up 20 percent.
It's not the only red flag Trump has received on the economy. Last week, the Atlanta Federal Board of Reserves predicted the U.S. GDP would drop 2.8 percent in the first quarter of 2025. Meanwhile, JPMorgan analysts have raised the risk of a recession amid the ongoing trade war.
How Tariffs Are Driving Stock Market Down
Trump signed an executive order upon his return to office to impose tariffs on Canada and Mexico in an effort to get their leaders to tighten the border and curb the flow of fentanyl into the country. He's also hit China with tariffs to fulfill a campaign promise of restoring U.S. manufacturing.
Economists, however, have warned these tariffs are more likely to have short-term economic consequences back home.
Ryan Monarch, a professor of economics at Syracuse University, told Newsweek tariffs are the key policy contributing to the market selloff, describing them as a "self-inflicted wound."
Typically, a Republican presidency would be defined by a pro-business outlook that includes lower taxes and deregulation, which tend to boost investment in equities. Trump's tariffs, however, are a driving force in the other direction this time, Monarch said.
He laid out a few reasons tariffs are causing the market to decline. First, they lead to higher prices for businesses and consumers. Trump's goal of seeing more factories built in the U.S. is costly and takes time, so companies may not be able to deliver strong returns to investors in the short-term, he said.
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The administration has also shown more willingness to put up with short-term pain caused by the tariffs, he said, pointing to Trump's remarks over the weekend that he can't rule out a recession. The White House doesn't seem to be "reacting" to markets in the way they did in his first term regarding tariffs, he said.
"In the first Trump administration, there was this widespread belief that downturns in the stock market that came from federal policies would encourage President Trump to reconsider those policies, Monarch said.
"That's a change we're seeing because even with the recent downturn in markets, President Trump has continued on his pace of adding new tariffs, defending the tariffs, layering them one on top of each other."
The implementation of the tariffs is furthering investor skepticism, he added.
Tariffs on Canada and Mexico were meant to go into effect last week after a 30-day pause, but Trump announced many of the levies would again be paused. On Tuesday morning, Trump announced that he would double the tariffs on steel and aluminum coming in from Canada in response to a Canadian tariff on U.S. electricity.
Later Tuesday, however, the president told reporters these tariffs might not be doubled after all.
The chaotic rollout of the tariff policiy is creating uncertainty, which is bad for business and investments, Monarch said.
Stocks began dropping following the initial announcement, but climbed back up later in the day, paring some losses.
What People Are Saying
Chris Larkin, managing director of trading and investing at E*Trade, told the Associated Press: "There are always multiple forces at work in the market, but right now, almost all of them are taking a back seat to tariffs."
Dennis Dick, a trader at Triple D Trading, to Reuters: "Every time we feel like we're getting a little bit of a lift, we get a Trump update on more tariffs...it's getting ugly and it's going to hurt
What Happens Next
As of now, the full slate of tariffs are slated to resume next month, while the full economic impact of those tariffs are yet to be felt. Monarch said if Trump wants to prevent further stock market declines, he could consider implementing them in a more strategic way, as the U.S. has done in the past.
"I think the market would rejoice at that," he said.
Still, he noted that Trump's strategy so far has not been to back down, suggesting more market volatility could lie ahead.
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