In the spring of 2008, a colleague told me about a friend they had at Lehman Brothers. This friend was happy that the share price of the firm was falling because it meant they could buy more shares "at a discount." They hoped it would fall more. Within a few months, they would obviously regret their earlier glee and purchases. The lesson I learned: You can only make money off fear of a sinking ship if the ship stays afloat.
This story reminds me of how some market participants today hold a blind faith in quick rebounds for America’s long-term equity market growth. But the plunge in the U.S. stock market this week did not happen out of thin air. It happened because the approach to tariffs introduced by the administration is bad for U.S. and global economic growth. Markets appropriately adjusted to reflect this. The key question is: How long will these new tariffs stick around?
For those buying broad market indices, falling prices are only an attractive buying opportunity if the government eventually does the right thing. That’s what happened in the financial crisis of 2008 and the Covid sell-off in 2020. Equity markets continued their upward march because relative to each period's challenges, POTUS (including Treasury), Congress, and the Federal Reserve eventually did the right thing. If Trump, who has wanted tariffs for decades, has his way, though, and (a) the new tariffs stick around, (b) Congressional Republicans continue to defer to him, and (c) he replaces Jerome Powell in 2026 with someone who does his bidding, then this probably isn’t a great buying opportunity.
To be clear, I’m not making a prediction here; I'm putting out into the universe how to be thoughtful about moments like this instead of reflexive. I want to plainly state that the clearheaded thing is to think falling equity prices are attractive only if you also fundamentally believe what sparked those was an error that will be corrected. But you can’t both view equity prices as more attractive now and believe that Trump is correct about tariffs. For that to happen you’d also have to believe S&P 500 constituents like Apple and Nike will manufacture phones and shoes in America while maintaining their long-term earning power and that we will figure out how to grow bananas and coffee at scale in the U.S., none of which is likely.
Either you expect tariffs to be rescinded and markets to rally eventually, or you believe in the tariffs but accept the negative implications for earnings around the world. If you’re "buying the dip,” you ought to be supporting policymakers trying to correct this policy error.