The S&P 500 dropped 4.8% on 3 April — it’s worst one-day loss since 2020. Then, it fell over 4% the day after!
Of course, 2020 was the dark days of the global pandemic, and in many ways this latest market panic reminds me of that. Back then, shutdowns in China and other major manufacturing hubs disrupted supply chains. Now, increased tariffs are threatening global supply chains, leading to stock sell-offs in manufacturing, retail, and tech.
In 2020, there were widespread fears of a depression-style economic downturn, just as there are now.
Will there now be a stock market crash, as there was in 2020? Here are my thoughts on the market chaos.
A huge bite into Apple’s core profits?
In his recent ‘Liberation Day’ address, President Trump announced “kind reciprocal” tariffs (import taxes) on goods entering the US. These were much higher than previously feared, leading to massive uncertainty. As we know, uncertainty is like kryptonite to the stock market.
These taxes are a massive problem for some tech companies, notably Apple (NASDAQ: AAPL). Shares of the S&P 500’s largest firm dropped 14% in two days, shedding over $400bn in value from the iPhone maker.
Apple makes most of its iconic products in China, Vietnam, Taiwan, and India. All those nations are about to be hit with huge new tariffs.
Semiconductors are exempt, which is a positive, as Apple relies on Taiwan Semiconductor Manufacturing Company (TSMC) for its chips. The US has put a 32% levy on the island nation.
Yet the idea of manufacturing iPhones in the US to avoid these tariffs is for the birds, unless consumers want to stump up $3,000+ for one (unlikely). So the impact on the tech giant’s profit margins could be significant, especially if it chooses to accelerate its supply chain away from Asia (which would take years).
It is no exaggeration then to say that these challenges are the equivalent of a Category 5 hurricane for Apple.
Now, there is still a chance that Apple gets an exemption from some taxes, as it did during the first Trump administration. And it has world-class management schooled in navigating trade complexities, which will be crucial moving forward.
However, the stock is trading at 30 times earnings, which still seems quite high to me. Therefore, I’m not looking to buy any shares at the moment.
What I’m doing
Without wanting to sound like a fence-sitter, I have absolutely no idea whether there will be a severe market crash. Or hyperinflation. Or a global economic crisis.
Many still think these tariffs are President Trump’s opening gambit, merely designed to encourage trade concessions rather than permanent policy. In other words, the headline figures will be negotiated down in the coming months, leading to less economic carnage.
Again though, nobody really knows for sure. It’s a bit of an economic experiment, in my eyes. Even a binary bet.
In the coming quarters, I wouldn’t be surprised if some companies start suspending their guidance due to all the uncertainty, like they did during Covid. This will cause even more uncertainty.
What I do know is that previous crises like the financial crisis of 2007-2008 and the 2020 pandemic crash proved to be lucrative times to invest. So I will be looking for potential bargain stocks over the coming weeks.
