The idea of an import tax started weighing on investor sentiment in March, when President Trump laid out his initial plan to target Canada, Mexico, and China. Stocks tumbled, with the S&P 500 (^GSPC +1.46%) and Nasdaq Composite (^IXIC +2.02%) both temporarily slipping into correction territory. Indexes then recovered some terrain on hopes that the president, when announcing the complete plan, would be softening restrictions.
But when "Liberation Day," as Trump calls it to reflect the concept of economic independence, rolled around on April 2, the tariffs announced were deeper and broader than expected. They covered countries around the world with a 10% baseline tariff -- and countries from Taiwan to Switzerland found themselves facing duties of more than 30% on their goods destined for the U.S.
The result? The S&P 500 and the Nasdaq Composite each fell the most since 2020 in the trading session following the news, as investors worried about the impact of the tariffs on U.S. corporate earnings and the economy.
It's important to remember that though these tariffs punish the producers of the goods, those actually paying the duties are the U.S. companies and consumers buying them. So, this clearly is a tough moment for investors in U.S. stocks, but the good news is there are some moves you can make now to protect your portfolio. Let's consider three.
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1. Don't sell
Right now, you may be talking or thinking about how much money you've lost over the past few days -- but you've only lost if you've sold for a price lower than your purchase price. If you're still holding your stocks, even if they've tumbled in proportions you'd rather not think about, you actually haven't lost a dime. And this is why it's particularly important to maintain your positions right now.
In short, don't sell.
If you own some well-established companies -- from tech giant Nvidia to consumer player Walmart -- take a look at their performances during past tough times and in the years to follow. In most cases, you'll see that they've gone on to recover and gain. And even many younger and riskier players, too, may rebound over time. We also can see the positive trend in the S&P 500, the Nasdaq, and the Dow Jones Industrial Average over the years. So history shows that time always has favored investors who buy and hold for the long term.
And this means, unless you've completely lost faith in a company and want to reallocate the cash, hang on and wait for recovery.
2. Choose stocks that may benefit from tariffs
Tariffs aren't great news for any U.S. company, as most do rely on a certain degree of imports. But some companies may benefit in one particular way -- and it has to do with competition. Two good examples are e-commerce players Amazon (AMZN +0.53%) and Etsy (ETSY +3.07%). Both have been facing significant competition from rivals in China, such as fast-fashion business Shein.
Trump's tariffs eliminate a tax exemption on goods of $800 or less, meaning U.S. customers soon will pay more when they order items from those foreign competitors. This may prompt them to turn to Amazon and Etsy, sellers that also emphasize low prices.
NASDAQ: AMZN
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In fact, Amazon even recently introduced in beta form Amazon Haul, a service featuring items for $20 or less -- this and the tariffs could boost Amazon competitively in the months to come.
As for Etsy, not only will it potentially benefit from the tariffs concerning its competitors, but the tariffs might have limited impact on Etsy itself due to the company's business model. Etsy provides a platform for sellers to sell handmade goods -- it doesn't import, make, or ship these goods itself. On top of this, Etsy sellers may win because the company says these sellers generally source their materials close to home.
3. Reinforce holdings of Dividend Kings
Finally, to ensure returns no matter what the market is doing, consider adding to your holdings of companies that are committed to increasing their dividend payments and have the financial strength to do so. How do you find them? By looking at the list of Dividend Kings.
These companies -- such as Coca-Cola (KO +0.96%), Johnson & Johnson (JNJ 0.41%), and Abbott Laboratories (ABT 1.00%), just to name a few -- have lifted their dividends for at least the past 50 years. This shows rewarding shareholders is important to them. And a look at their free cash flow -- from $4 billion in the case of Coca-Cola to $18 billion and $6 billion from J&J and Abbott, respectively -- shows they have the resources to continue along this path even through difficult times.
Passive income is something you'll appreciate if the market downturn continues, as it limits your losses, and when the market recovers, as it's always done in the past, these payments offer you an extra dose of growth. So, these players are evergreen, ones that you'll want to hold on to in flourishing and difficult markets -- and today, buying a few of these stocks is a perfect way to protect your portfolio.
