The past few weeks have been anything but quiet. Ever since President Donald Trump rolled out his “Liberation Day” tariffs (which was April 2nd but to me feels like months ago), markets have been on consistently on edge. While he has talked about tariffs since the 1980s and discussed them frequently during his campaign, the size and scope of what was announced surprised most people[1].
The reaction in the stock market was fast and harsh. We saw two-day losses that rivaled major events like the Great Depression, the 2008 financial crisis, and the COVID crash of 2020[2]. Things have bounced back a bit since, but there’s still a lot of uncertainty — especially around global trade and a potentially escalating trade war.
Just last week, the VIX (which is expected volatility in the next 30 days and Wall Street’s defacto “fear gauge”) spiked 109%, which was the third-largest weekly jump on record[3]. Even though the economic data hasn’t shown cracks yet, people are understandably worried that tariffs could lead to inflation, job cuts, and possibly a recession.
So, with all that going on, it’s fair to ask: Should we even be invested in stocks right now? Wouldn’t it be safer to just sit in cash or CDs and wait it out?
Let’s talk about that.
To start, let’s explore how stocks (and the stock funds that we invest in) are actually valued. Put most simply, stock prices are tied to companies’ revenues and profits. The better companies do, the higher their earnings, and the more valuable they become. Investors apply a multiple to those earnings — based on the company itself, the economy, and what the future might look like. If profits go up consistently and the outlook doesn’t get worse, stock prices tend to rise[4]. That said, prices don’t move in a straight line. Lots of things can shake the market in the short term — positive or negative headlines, global events, economic data, or even just the time of year[5].
This is one of the most important things to remember: markets are always trying to price in what’s going to happen, not what’s currently happening. The volatility we’ve seen lately reflects investors guessing (and in this case worrying) about future earnings, interest rates, trade policy, and more. Sometimes those guesses turn out to be wrong or an overreaction — but the market moves anyway[5].
These days, news spreads incredibly fast, and markets react almost as fast. That’s why it’s so hard to sell at the right time and then buy back in before things rebound. By the time most people feel comfortable getting back into stocks, the recovery is usually already well underway[7]. We just saw this when Trump announced a 90-day pause on some tariffs — stocks snapped back almost immediately[6]. When headlines shift, so does market sentiment, often without much warning.
One more thing: stocks usually bottom out before the economy does. Historically, stock prices hit their lowest point 4–6 months before corporate earnings do[7]. So, if you’re waiting for “clear skies” in the economic data before jumping back into the stock market, you might miss the recovery in the market itself.
It might feel counterintuitive, but some of the best investment opportunities show up when things look the worst. When fear is high and the news is ugly, long-term investors are often rewarded for staying the course[8]. Historically, some of the strongest returns have come after the most difficult periods. Following the 10 worst calendar years since 1975, the S&P 500 delivered an average return of 17.5% one year later, compared to its average one-year return of 9.7% over the same broader time frame[8]. Over longer periods, the results are even more striking: an average 56% return after three years, and more than 200% after ten[8].
No one knows exactly what will happen next. But market turbulence like this is a good reminder of why diversification matters. Stocks may offer the best long-term growth, but it’s smart to have other pieces in place — like bonds, cash, or other income-producing assets — to weather storms like this one. This is especially true for more conservative investors and those who are relying on their investments for retirement income. Bottom line: staying invested doesn’t mean being blind to risks. It means being prepared for it — and knowing that over time, markets tend to reward those who stick with the plan.
References
1. Council on Foreign Relations. Trump’s Trade War Timeline. https://www.cfr.org/timeline/us-trade-wars
2. Investopedia. Worst Stock Market Crashes in History. https://www.investopedia.com/worst-stock-market-crashes-in-history-5180187
3. Cboe Global Markets. Understanding the VIX Index. https://www.cboe.com/us/indices/dashboard/vix/
4. Corporate Finance Institute. Stock Valuation: Understanding How Stocks Are Valued. https://corporatefinanceinstitute.com/resources/capital-markets/stock-valuation/
5. Charles Schwab. How Stocks React to Economic News. https://www.schwab.com/learn/story/how-stocks-react-to-economic-news
6. Reuters. Wall Street rallies as U.S. delays China tariffs. https://www.reuters.com/article/us-usa-trade-china-stocks-idUSKCN1V51E8
7. Hartford Funds. Stock Market Performance Before, During, and After Recessions. https://www.hartfordfunds.com/insights/market-perspectives/market-performance-before-during-and-after-recessions.html
8. BlackRock. What Happens After Big Down Years?. https://www.blackrock.com/us/individual/insights/what-happens-after-big-down-years