Market Climb, Investors Downplay Trump’s Tariffs

Market Rally Doesn’t Shield Investors from Tariff Risks

Wall Street appears unfazed by the looming threat of a global trade war.

The S&P 500 closed just shy of a record high on Thursday after President Donald Trump instructed his administration to explore reciprocal tariffs on several U.S. trading partners. Despite concerns about escalating trade tensions, markets surged, reflecting investor sentiment that the economic impact of tariffs may be less severe than initially feared.

“The bark is worse than the bite,” said George Young, partner and portfolio manager at Villere & Co., which oversees $1.8 billion in assets. Investors were relieved that Trump’s order didn’t impose immediate tariffs, easing fears of swift economic disruption. Similar tariff-related announcements in the past have also been met with less severe consequences than initially expected.

On Wednesday, the S&P 500 climbed 1% to close at 6,115.07, just 0.1% below its record high of 6,118.71 set on Jan. 23. The Dow Jones Industrial Average gained 342.87 points (0.8%), while the Nasdaq Composite surged 1.5%.

Earlier this week, Trump imposed a 25% tariff on steel and aluminum imports, following previous levies on goods from Canada, Mexico, and China. However, tariffs on Canada and Mexico were temporarily paused after both countries pledged to tighten border security and combat drug trafficking.

Despite the market’s optimism, investors remain cautious. “This is the new normal,” Young told MarketWatch. “The market isn’t ignoring the risks—it’s digesting them one step at a time, waiting to see what actually unfolds.”

The tariff debate is far from over. White House officials suggest that reciprocal tariffs could take effect within weeks or months. While the administration has backed away from a universal 10%-20% tariff, a country-by-country approach could result in even higher average tariffs and rising consumer prices, warned Paul Ashworth, chief North America economist at Capital Economics.

Tariffs are just one of several economic uncertainties tied to Trump’s policies, noted Matt Eagan, portfolio manager at Loomis, Sayles & Co., which manages $389 billion in assets. “Tax cuts may boost spending but worsen the deficit. Immigration policies could tighten labor markets but drive up wages. Tariffs could slow demand while increasing costs,” Eagan explained. “Investors must look beyond the headlines. Trump’s policies may seem more bark than bite, but complacency is risky.”

That complacency could lead to a dangerous cycle, warned Christopher Smart, managing partner at Arbroath Group, a firm specializing in geopolitical risk analysis.

“If markets don’t react negatively, Trump may feel encouraged to push even further,” Smart noted. “Tariffs are coming—it’s just a matter of how high they’ll go. Given the market’s calm response so far, the president may be emboldened to test the limits.”