The stock market rally that accompanied the start of President Donald Trump's second term has taken an abrupt turn amid the president's ever-changing tariff policy and refusal to rule out a recession. The so-called "Trump bump" is now a "Trump slump."
In the worst day for the markets since September 2022, Monday's close saw the S&P 500 drop 2.7%, the Dow Jones Industrial Average down 2.08%, and the Nasdaq composite falter 4%. At Tuesday's market open, markets slipped further. It's a far way from the elation that followed news of his election at the end of 2024 and into 2025. In fact, all three major indexes have wiped out any gains made since Trump's election in November.
The president's on-again, off-again tariff policies are particularly worrisome from a growth perspective, as are the fears of stagflation and a potential government shutdown. Add Trump-administration-induced geopolitical turbulence, and investors are left with a lot of uncertainty: The VIX, or fear index, is at the highest level since the stock market dive of 2022.
"There are times when financial markets look past a lot of political noise. This hasn't been one of them," says Richard Flax, chief investment officer at Moneyfarm, a European digital wealth manager.
Flax points out that while it's too soon to tell the true impacts of the tariffs—or even exactly what they are, what sectors they will affect, or how long they will be in place—consumers and businesses may pull back their spending in anticipation of higher prices.
"Policy uncertainty is quite high, and we think that's impacting consumer sentiment in the U.S.," he says. "We think that merits a slightly more cautious stance in portfolios and we've made some changes to portfolios to reflect that."
High-flying tech stocks have been hit particularly hard—and perhaps none worse than Tesla, with shares sinking over 15% on Monday, bringing its total 2025 losses to over 40%, as CEO Elon Musk's political work in the Trump administration has soured many consumers on the electric-car maker. And Nvidia, the AI darling, has lost more than $1 trillion of market value since a January peak thanks to the potential impacts of Trump's tariffs.
In an interview on Fox News on Sunday, the president refused to say whether or not he is expecting a recession this year, further unnerving investors.
"I hate to predict things like that," said Trump, although he typically uses a rising stock market as a benchmark of his administration's success. "There is a period of transition because what we’re doing is very big."
Economists are generally more optimistic about the state of the U.S. economy, saying it's too soon to say a recession is imminent.
Where should investors put their money?
It's normal to feel jittery in periods of market uncertainty like this. But Flax warns against making any big changes to portfolios.
"As always, we'd be wary of trying to time the market," he says. "We think it's important to stay invested for the long term, even during periods of volatility, and to maintain a well-diversified portfolio."
In fact, a Trump slump could be a buying opportunity for those still years or decades away from retirement. It might make sense to consider boosting your contributions, if you can afford to do so.
"A recession typically means stocks are 'on sale.' Boosting contributions prior to a recession will help investors get more bang for their buck, if a recession hits," says Daniel Milan, founder and managing partner of Cornerstone Financial Services. "Waiting until a recession may make investors wary about adding more to their investment budget."
