Should You Invest as Tariff Uncertainty Lingers? History Shows a Clear Pattern When It Comes to Stock Market Turbulence.

The stock market got clobbered and is quite volatile right now. Daily updates surrounding President Trump's tariff policies and the implications they are having on global trade relationships have brought on a panic-driven stock market sell-off of epic proportions.

While uncertainty around these tariffs looms, I'd caution investors from getting too caught up in the day-to-day news stories. Let's explore why the last several years have been one of the most interesting periods in modern financial history, and assess what these patterns can teach about investing during times of economic turmoil.

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Chaos in the stock market isn't anything new

During Donald Trump's first term as president -- between Jan. 20, 2017, and Jan. 20, 2021 -- the S&P 500 (SNPINDEX: ^GSPC) gained 69% while the Nasdaq Composite soared by 142%.

^SPX data by YCharts.

What's a little ironic about these eye-popping returns is that they mostly occurred during a time of relative chaos. What I mean by that is the capital markets went absolutely parabolic during the latter portion of Trump's first presidency -- specifically, during the peak days of the COVID-19 pandemic (annotated in the graph above by the grey-shaded column).

While many people made a lot of money during that period, the euphoria fueling the stock market was not enough to get Trump reelected in the 2020 election.

President Joe Biden succeeded Trump in the 2020 election, and assumed the White House between Jan. 20, 2021, and Jan. 20, 2025. During this period, the S&P 500 and Nasdaq Composite rose by 56% and 46%, respectively.

^SPX data by YCharts.

Those returns aren't too shabby at all. With that said, a good portion of Biden's presidency was plagued with ongoing rhetoric over abnormally high inflation and rising interest rates.

The interesting thing about these dynamics is that even though investors enjoyed healthy stock market returns throughout the Biden presidency, they didn't necessarily "feel" those gains as uncertainty around inflation and borrowing costs took a toll on economic activity.

As a result, many voters decided yet again to move in a different direction during the most recent election cycle. On Nov. 5, Trump was reelected as president -- and my hunch is that many people were inspired by the feeling they had when markets were roaring back in 2020 and 2021.

The reaction in the capital markets following Trump's victory in November sent a clear message -- investors were excited again. Between Nov. 5, 2024, and Dec. 31, 2024, the S&P 500 gained as much as 5% while the Nasdaq rose as high as 9%.

However, by the end of December these gains had substantially retreated. In my eyes, one reason for that was the possibility of tariffs -- something Trump spoke about quite often during his time campaigning. As the prospects of tariffs became more of a reality as Trump's inauguration inched closer, some investors likely started to lose some enthusiasm.

The long-term picture offers a clearer message

In exploring the trends mentioned, emotions play a significant role in how the stock market operates. Investors often make the mistake of focusing too much on the recent past, which makes building wealth difficult. Nevertheless, it'd be more beneficial to take a broad perspective and analyze the stock market's long-term performance.

^SPX data by YCharts.

The chart above illustrates long-term returns of major indexes, including the S&P 500, Nasdaq Composite, Russell 2000, and Dow Jones Industrial Average over the last 35 years. Each of the grey columns represents a recession in the U.S.

Economic indicators such as inflation, interest rates, unemployment rates, and now tariffs have brought unquestionable turbulence to the capital markets for several years now. And while it's easy to get bogged down in the day-to-day noise, the undisputed message from the trends illustrated above is that each of these major indexes broke previous records following periods of uncertainty -- hence, buying stocks during these downturns and holding for the long run paid off considerably.

Image source: Getty Images.

How should investors navigate the current uncertainty?

Although history offers a clear message that investing during periods of weakness in the market tends to yield positive results, the more nuanced consideration becomes what you might choose to invest in right now. My honest answer is that there are loads of options, and it simply boils down to your risk appetite.

For growth-oriented investors, buying the dip in the "Magnificent Seven" stocks could prove wise in the long run. But for investors who are looking for more insulated opportunities, I think spreading some capital across exchange-traded funds (ETFs) that track the major indexes above is also a prudent strategy. Some choices for those include the Vanguard S&P 500 ETF, SPDR S&P 500 ETF Trust, Invesco QQQ Trust, iShares Russell 2000 ETF, or the SPDR Dow Jones Industrial Average ETF Trust.

The big-picture idea here is that investing during periods of chaos, uncertainty, and volatility actually tends to be a good strategy in the long run, despite how hard it can be to deal with near-term headwinds every other day.

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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.