Trump's Tariffs Are Crushing the Stock Market: Here's What All Investors Need to Know

To say that the stock market is having a negative reaction to President Donald Trump's reciprocal tariffs would be a major understatement. As of 10:30 a.m. ET, the Dow Jones Industrial Average (DJINDICES: ^DJI) was down by about 1,500 points, a decline of 3.5% for the day. The S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) were faring even worse, down by 4% and 5.1%, respectively.

The small-cap Russell 2000 index is taking the worst hit of the headline indexes. It's down by nearly 6% for the day as I write this, and is now 21% off its high, putting it into bear market territory.

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Given the market's reaction, it's important to take a step back and digest what the tariffs mean for investors and what could happen next. Here's a quick rundown of the news and what investors should be focusing on.

Trump's tariffs: The short version

First, here's a quick overview of the news. President Trump announced "reciprocal tariff" rates on more than 180 countries around the world.

The president shared charts of the new tariff rates, broken down by country, claiming that the rates are roughly half of what each country is charging the United States. However, the numbers are significantly higher than many experts had predicted as the administration is including "currency manipulation and trade barriers," in addition to the tariffs each country charges on U.S. goods.

The plan has a 10% baseline tariff, but imports from many countries are facing much higher rates. For example, China is receiving a 34% tariff on top of the 20% existing tariff in place. And just to name a few others:

• The European Union is getting a 20% tariff under Trump's plan.
• Vietnam is one of the hardest-hit countries, with a 46% reciprocal tariff.
• Japan is receiving a 24% rate, and India will have a 26% tariff.
• The U.K., Brazil, Singapore, Chile, and Australia are examples of countries that are getting the baseline 10% rate.

Why are stocks plunging?

All of the major stock market averages were sharply lower on the tariff news. In short, the tariffs were much harsher than most experts had expected, and this is seen as both an additional inflation and recession risk.

But some sectors, industries, and groups of stocks are being hit harder than others, including:

• Companies that primarily sell imported goods are getting crushed. One major example is discount retailer Five Below (NASDAQ: FIVE), which was down by nearly 30% on the news.
• Companies that sell and manufacture goods in international markets are also getting hit hard. For example, tech heavyweight Apple (NASDAQ: AAPL) was down by 9%.
• Tech stocks, in general, are one of the worst performing parts of the market, as evidenced by the Nasdaq's underperformance. Many of these aren't too exposed to tariffs, but technology tends to get hit hard when the market is perceived as "risky."

On the other hand, some parts of the market were holding up better than most. For example, real estate investment trusts, or REITs, are doing significantly better than the broader market. REITs tend to be highly sensitive to interest rates, and the 10-year Treasury yield fell sharply on the tariff news.

Another group holding up well is most international companies that don't sell goods in the United States. For example, Latin American e-commerce company MercadoLibre (NASDAQ: MELI) is the best-performing stock in my portfolio after the tariff news.

What comes next?

Perhaps the biggest reason the stock market is so turbulent right now is because there's a lot of uncertainty surrounding what comes next. Investors don't know how long these tariffs will be in place, if they'll be negotiated lower, and what they mean for inflation in the United States. Commerce Secretary Howard Lutnick said in an interview that the tariffs will cause other countries to "examine their trade policy toward the United States of America."

Economists are also split when it comes to what these tariffs could mean for the Federal Reserve's interest rate movements, as well as for the U.S. economy as a whole. Some believe this will prompt the Fed to keep rates where they are for the rest of 2025, while others, like UBS Global Wealth Management Chief Investment Officer Mark Haefele, believe that we'll now see three or four rate cuts this year.

What should investors do right now?

More important than the question of what investors should do is what they shouldn't do -- and that's to panic. Nobody enjoys watching their investments go down in value, but it's important to keep a cool head.

Panic selling almost never works out in investors' favor, and if you're stressed and aren't sure what to do, there's nothing wrong with doing nothing at all. When the market becomes ultra-volatile like it is today, I like to sit back in my chair and say, "Today is a great day to do absolutely nothing!"

If you're a long-term investor and have some cash on the sidelines, it could be a smart time to start looking for new opportunities. There are some excellent businesses -- many with little exposure to the tariffs -- that are down by 5%, 10%, or even more on the news.

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Matt Frankel has positions in MercadoLibre. The Motley Fool has positions in and recommends Apple and MercadoLibre. The Motley Fool recommends Five Below. The Motley Fool has a disclosure policy.