Will the stock market licking if the tariffs from President Trump cause a recession? The story has a clear answer for investors.

The S&P 500 (^GSPC 0.15%))) After President Donald Trump presented a surprisingly heavy tariffs on April 2, he was called the “day of liberation”. The benchmark index rejected more than 6 trillion dollars in the next five trading sessions and closed almost 19% under his record high on April 8.

Investors recently received more bad news: the US gross domestic product (GDP) took back in the first quarter of 2025 with an annual rate of 0.3%, the first economic contraction since the first quarter of 2022.

While GDP in a single quarter does not mean that the US economy has entered a recession, it is undoubtedly a step in this direction. Economists asked of The Wall Street Journal Set the likelihood of recession in the next 12 months in April 45%, compared to 22% in January.

Will the stock market licking when President Trump's trade policy divide the US economy into a recession? The story gives a crystal clear answer.

The S&P 500 usually decreases when the US BIP works together

GDP measures the size of an economy. It is calculated as a sum of four data points: consumer expenses, business expenses, state expenditure and net exports. Without the latest contraction, GDP has only reduced in three quarters in the past ten years, and the S&P 500 has carried out darker in these periods as described below:

• 2020: In the first quarter of 2020 and 28.1%, the annualized GDP decreased by 5.5% in the second quarter of 2020, since the Covid 19 pandemic was spread quickly worldwide, which forced the closures of the business degrees and disturbed the supply chains. This led to a short recession in which the S&P 500 fell from its record high by 34%.
• 2022: The annualized GDP decreased by 1% in the first quarter of 2022, since the pandemic caused disorders of the supply chain to the worst inflation has led to the worst inflation for four decades, which caused the Federal Reserve to increase interest rates at historically aggressive pace. The US economy has avoided recession, but the S&P 500 still fell by 24% of its record high.

The economic contractions listed above were caused by external factors-namely a global pandemic and scorching inflation, but the latest contraction was a self-inflicted wound that was driven by a dramatic change in US trade policy.

In the first quarter, Trump imposed tariffs for goods from China, Canada and Mexico as well as tasks to steel and aluminum imports. He also announced plans for more serious mutual tariffs, but these tasks will only come into force in the second quarter.

This means that “Liberation Day” tariffs only had an indirect influence on GDP of the first quarter. They urged companies to keep the inventory, which led to the largest trade deficit, so that the component “net export” of the GDP equation was a large negative number. However, the direct effects of these tariffs are only displayed in July in the second quarter GDP data prints.

This is important because the tasks of the “liberation day” represent the largest increase in wage in history and have increased the average tax on US imports at the highest level for more than 100 years. It is reasonable to continue the economic conditions in the current quarter, perhaps even to the recession point.

The story says

The S&P 500 was historically severe in the recessions. The following table shows the decline in the benchmark index in every economic downturn since it was founded in March 1957.

Data source: Truist Advisory Services.

As shown above, the S&P 500 decreased on average 31% during the recessions. While past performance is not a guarantee of future results, we can apply this data to the current situation in order to guess a well -founded assumption.

The S&P 500 reached a highlight of 6.144 in February 2025. If the US economy suffers a recession, the index could decrease by 31% to 4,239 if its performance matches the historical average. This implies 23% according to the current level. In short, the story says that the stock market would actually crash if President Trump's tariffs would cause a recession.

However, this does not mean that investors should avoid the stock market today. First, there is no guarantee that the US economy will actually suffer a recession. Second, the S&P 500 has recovered from every past, and there is no reason to expect a different result this time. Since the index is currently 11% below its high, the current situation for patient investors is actually a compelling time to buy stocks.