The stock market logic under the threat of tariffs: Why investors are still willing to "look ahead"

Learning from history, the global stock market may be able to withstand more tariff pain.

Bloomberg strategist Garfield Reynolds stated in a recent article that based on the historical experience of the first trade war in 2018, the global stock market is still months away from suffering a sustained severe impact due to tariff policies, and it may fully absorb this impact.

Recently, Trump announced plans to impose tariffs on the EU and Mexico, raising market concerns, with the euro and risk assets likely under pressure early next week. However, Reynolds believes that since there are currently no signs that the trade war has significantly affected the economy or corporate profits, investors are likely to continue adopting a buy-the-dip strategy.

According to a report by CCTV News, on July 12 local time, U.S. President Trump announced that starting August 1, 2025, the U.S. will impose a 30% tariff on products imported from Mexico and the EU. In response, European Commission President Ursula von der Leyen stated on the 13th that the suspension period for countermeasures against U.S. tariffs would be extended to early August.

Despite many Wall Street figures being surprised by the market's calm response, such as JP Morgan CEO Jamie Dimon criticizing the market's sluggish reaction to trade frictions, the market performance in 2025 is remarkably similar to that in 2018. Reynolds believes that the experience of Trump initiating the trade conflict for the first time seems to provide a relatively reliable roadmap for the current situation.

Striking Similarities in History: The Trajectory of Trade Conflicts in 2018 and 2025

Reynolds stated that the evolution of the trade wars in 2018 and 2025 shows striking similarities. While the previous trade war primarily targeted specific countries, the current trade war aims to rewrite the global trade order, both exhibiting a high degree of consistency in the rhythm of policy announcements and withdrawals.

The timelines of the two trade wars are similar, both starting at the beginning of the year and experiencing key turning points in the second quarter. Trump's governance style dictates this pattern: he firmly believes that tariffs are an effective tool and views international relations as a zero-sum game, thus tending to keep all trade partners in a state of instability.

Notably, the performance of the global stock market this year is also quite consistent with that of 2018. The only significant difference occurred after Trump announced reciprocal tariffs on April 2, when the stock market experienced a sharp decline, far exceeding levels seen seven years ago. However, as Trump postponed the imposition of these tariffs and reached temporary reconciliations with major trading partners, the market began to bet again that the impact of the trade war would be relatively limited.

Significant Improvement in Monetary Policy Environment

Reynolds believes that there is a key advantage in the current market environment compared to 2018:

The direction of monetary policy is completely different. In 2018, the Federal Reserve was in a rate-hiking cycle, responding to the economic overheating caused by Trump's tax cuts in 2017, a strong job market, and rising inflation In contrast, the market still expects the Federal Reserve to resume its rate-cutting path, although tariffs may delay the timeline for rate cuts.

According to analysis, the recently passed fiscal expansion budget plan also suggests that this fiscal stimulus may offset the negative impact of tariffs, which is a stark contrast to the fiscal stimulus that was only introduced a year before the last trade war.

More Robust Earnings Foundation

The article mentions that this year's corporate earnings situation may also be more favorable, especially against the backdrop of the AI boom driving profit growth.

The S&P 500 index's 5.5% increase in the first half of this year has provided a more solid foundation for the market, compared to a mere 1.7% increase during the same period seven years ago.

Additionally, such extreme EPS growth has also occurred in 2000, 2007, and 2022, ultimately leading to stock market declines, but there have also been periods in history where soaring profits propelled the stock market to continue rising.

The Stock Market Can Withstand More Tariff Shocks

Reynolds stated that, based on historical experience, global stock markets have the capacity to overcome short-term tariff noise.

He believes that the market may not see a significant decline until the actual impact of tariffs on the real economy becomes evident. Even so, unless other negative factors arise, the stock market is still expected to continue its upward trend.

The most concerning potential risk comes from the bond market, where fiscal indulgence may push long-term yields to worrying levels. Investors should closely monitor this area, as it could become a key variable that breaks the resilience of the stock market in the future.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the individual user's specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk