Investors seem comfortable with tariffs for now, but 'we're going to see volatility,' says chief investment strategist

CNBC

24-07-2025

The first half of the year was a wild ride for investors.
After cruising along for the first few months, the market skidded off the road after an April announcement from President Donald Trump of sweeping new tariffs. Fears that the levies would reignite inflation and spark a trade war with the potential to tank the global economy drove investors to sell to the tune of a 19% peak-to-trough decline in the S&P 500.
Trump soon announced a months-long pause on many of the tariffs, and countries have since negotiated down duties on their imports to the U.S.
"[Trump] burned his hand on the stove in April," says Jeff Buchbinder, chief equity strategist at LPL Financial. "But he got his finger in ice water real quick and recovered from it."
The market bounced back from the tariff shock, and then some: the S&P 500 is up more than 8% year-to-date and continues to make new highs.
The threat of tariffs still looms. The Trump administration plans to reinstate blanket tariffs on more than a dozen nations starting Aug. 1. So far, investors have demonstrated they believe U.S. firms can take higher import taxes in stride, says Wei Li, chief investment strategist at the BlackRock Investment Institute.
This resilience, coupled with other positive factors, such as corporate deregulation and stimulative tax policy, could help push the market higher for the rest of the year, experts say. But don't be surprised to see some jumpiness in your portfolio, Li says.
"We're going to see volatility," she says. "We're going to have headlines creating a lot of uncertainty and markets have the tendency of being carried away one way or another, both on the downside and on the upside."
Part of the bull case for stocks in the second half of the year relies on a shift away from the sort of financial headlines that sowed chaos for the first six months.
"We're hopeful that there will be a baton handoff from a lot of hyper policy focus, whether that's been tariff policy, tax policy, monetary policy — that baton will eventually be handed off to more of a focus on the fundamental economy, meaning, how are businesses and consumers performing?" says Eric Freedman, chief investment officer at U.S. Bank Asset Management Group.
For Freedman and other investment analysts, the market's underlying fundamentals are encouraging. Recent corporate earnings results have come in ahead of expectations, on average, and Wall Street analysts project continued growth in the back half of the year, according to data from LSEG I/B/E/S.
Other positive factors for stocks:
And importantly, investors seem to be comfortable with tariffs — for now.
The effective tariff rate (including levies slated to go into effect Aug. 1) across all U.S. imports is around 21%, according to a July 14 report from the Yale Budget Lab — the highest level in since 1910. The White House has since announced a deal with Japan, and continued buoyancy in the market suggests that investors believe more rollbacks and carve outs are to come.
"Tariff rates in the mid-teens are already being priced into stocks, and the market isn't necessarily believing threats that it will stay about 20%," Buchbinder says.
Even if tariffs subside some, mid-teens tariffs are a serious boost from where they stood when Trump took office. But it's unclear to what extent the taxes on imports will hurt the bottom line for U.S. businesses or to what extent those firms will pass cost increases along to their customers.
"The question about who is going to eat the tariffs is, it's still uncertain. Is it going to be the consumers? Is it going to be the American corporates? Or is it going to be the international suppliers, international exporters?" says Li.
If it turns out that persistently high tariffs are damaging corporate profitability and hurting U.S. consumers, the market very well may do an abrupt about-face, experts say. If you're a long-term investor, though, the key is to stick to your plan, stay diversified and, ideally, ignore short-term swings in the market.
To that end, remember that American corporate profitability has steadily risen over the past decades, a phenomenon that has, in turn, driven up stock prices over the long term, says Buchbinder.
"If you keep that in mind, it helps tune out all this noise that can scare people out of the market, and it helps you avoid making emotional decisions that that can hurt you — selling at the bottom or taking too much risk at the top," he says.