Recent Market Dip Amid Tariff Concerns: What Investors Should Know

After two years of strong performances, the S&P 500 (SNPINDEX: ^GSPC) has shown signs of losing momentum in recent days. Over the past two weeks, the index has dropped more than 4% due to rising concerns about tariffs imposed by President Donald Trump on imports from China, Mexico, and Canada. These tariffs, which are set at 25% for goods from Mexico and Canada and 20% for those from China, took effect earlier this week.

In a bid to alleviate some worries, the White House announced a one-month delay on tariffs for automakers that comply with the new trade rules established by the United States-Mexico-Canada Agreement (USMCA). This flexibility may reduce the negative impact on businesses, and analysts will be watching for any further actions from the Trump administration that might ease trade tensions.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Despite the temporary market dip, economists caution that the full implementation of these tariffs could lead to higher prices and prolong the period of elevated interest rates. Such conditions could challenge manufacturing firms operating abroad and hinder the sales of businesses dependent on imports.

Notably, rising prices may also restrict consumer spending, contributing to increased uncertainty around corporate earnings growth. This scenario has led some investors to hesitate before making stock purchases.

Should you exit the Stock market? Certainly not. Instead, here are three strategic steps every investor should consider to safeguard their portfolio.

Image source: Getty Images.

1. Ensure Diversification in Your Portfolio

First, review your portfolio to confirm that it is well diversified across various stocks and industries. Holding a range of sectors can help mitigate the impact of significant market fluctuations—one industry might falter while another rises. This is especially critical during the ongoing trade war, where some companies stand to be more adversely affected by tariffs than others.

It’s essential to recognize that today’s high performers may be tomorrow’s laggards. For instance, technology stocks like Moderna and Pfizer thrived in the early pandemic phase but have recently seen downturns as vaccine demand slowed. Thus, it’s wise to ensure that your holdings are not overly concentrated in one sector.

Moreover, only invest in industries you understand thoroughly. This approach aids in evaluating a company’s earnings effectively and making informed investment choices as a shareholder.

2. Keep Cash for Strategic Buying Opportunities

Many stocks began this year at high valuations due to last year’s gains, but recent market declines have created appealing buying opportunities. For example, Nvidia (NASDAQ: NVDA) now trades at around 26 times its forward earnings estimates, compared to more than 48 times early this year. Many other companies across different sectors find themselves in similar situations.

Letting these buying opportunities slip away would be regrettable. Therefore, during times of market fluctuation, it’s prudent to maintain some cash reserves to take advantage of high-quality stocks that might become available at more reasonable prices.

Of course, ensure that all your bills and immediate financial obligations are handled before setting aside cash for investment. If you have covered those, holding onto cash now could allow you to seize unique opportunities when they arise.

3. Adopt a Long-Term Investment Perspective

Regardless of whether the current trade war persists or resolves quickly, focusing on the long term will position you for success. Short-term thinking can lead to panic selling high-quality stocks or buying low-quality ones simply because they seem popular at the moment.

Such decisions can severely impact your portfolio’s performance. Instead, consider the long-term outlook for companies. Even if a stock drops now due to tariffs affecting earnings, ask yourself these questions:

• Can the company effectively manage the tariff challenges and succeed in the long run?
• Has this company previously navigated situations like inflation successfully?

If the answers to both questions are affirmative, that stock could be a valuable long-term hold, even amid near-term struggles.

This long-term focus also serves as a reminder that the stock market has historically rebounded from downturns and periods of difficulty. By maintaining your investments over the years, even during adverse conditions like the current trade war, you too might achieve significant gains.

Should You Invest $1,000 in Nvidia Right Now?

Before you purchase stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team recently identified their top ten stocks for investors to consider now—Nvidia was not among them. The ten featured stocks are expected to yield substantial returns over the coming years.

If you had invested $1,000 in Nvidia when it was first recommended on April 15, 2005, you’d have $718,876!*

Stock Advisor offers investors a clear guide for success, including portfolio building advice, consistent analytical updates, and two new stock picks each month. Since 2002, the Stock Advisor service has more than quadrupled the S&P 500’s returns.* Don’t miss out on their latest top 10 stocks list, available upon joining Stock Advisor.

See the top 10 stocks »

*Stock Advisor returns as of March 3, 2025

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Pfizer. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.