We're just four months into the year and there's already been a multitude of events that have rocked the capital markets.
Back in January, a Chinese artificial intelligence (AI) start-up called DeepSeek shook investors to the core as the company claimed to build its models on older, less sophisticated IT architectures than American AI developers had been using. While these fears subsided relatively quickly, the market volatility continued thanks to mixed opinions on important economic data related to inflation and jobs reports.
Most recently, the event that has caused the biggest stir in the stock market is President Donald Trump's new tariff agenda. Since he announced his global tariff policies on April 2, stocks have been whipsawing so dramatically it's become both jarring and disorienting for investors to figure out what to do.
During times like these, a famous Warren Buffett quote always comes to mind. Let's assess the magnitude that the tariff news has had on the market. More importantly, we'll explore the mindset of the "Oracle of Omaha" -- which could help investors moderate any panic and fearful emotions they may be feeling right now.
Trump's tariffs are wreaking havoc on the markets
The chart below illustrates the returns of both the S&P 500 and Nasdaq Composite so far this year. As I alluded to above, there have been multiple drop-offs across both indices throughout the first few months of 2025. However, the clear anomaly shown below is the precipitous decline that occurred in early April -- immediately after Trump's tariff policies became public:
Even though it's scary, this market dip presents opportunity
The stock market is a fascinating case study in human psychology. It's a medium that reflects a wide range of emotions. When the markets are soaring, most people are euphoric. When the markets are crashing (like they are now), most people run for the hills.
But even during the so-called good and bad times, there exist a small cohort of people known as contrarians. These investors go against the grain; they don't adhere to mainstream ways of thinking.
When the stock market is roaring, a contrarian may become concerned that valuations are becoming disconnected from the performances of actual businesses. In other words, contrarians will think that people are investing more into narratives than concrete fundamentals. By contrast, when valuation levels drop, a contrarian may be inclined to start putting money to work as stocks become more attractive at their normalized prices.
Buffett is a well-known contrarian. And right now, I can't stop thinking about his famed line, "You want to be greedy when others are fearful, and you want to be fearful when others are greedy." On the surface, that philosophy might not entirely resonate with the average investor. But below, I'll make the case for why Buffett's logic makes a lot of sense.
Image source: The Motley Fool.
Remember to keep the long term in focus
The chart below illustrates the performance of the S&P 500 and Nasdaq Composite over the last two decades. Each of the grey-shaded columns indexed against the performance of the S&P and Nasdaq represents a different recessionary period.
Do you notice anything? Naturally, right around the time a recession went into effect, both indices started to fall. However, following the recessions both the S&P 500 and Nasdaq started to rise again -- eventually reaching new highs.
I'm not showing this trend because I'm predicting a recession. Rather, I'm making the case that the stock market is quite a resilient place in the long run -- even if emotions can sometimes drive a lot of the action in the near term. These dynamics underscore that some brave investors (like Buffett) were actually buying during historical periods of prolonged sell-offs and market crashes. In other words, some investors were greedy when most others were fearful and panic-selling.
I'll admit that it's really difficult to identify stocks that may be oversold or that are less exposed to tariffs. Instead of going down those rabbit holes, I think a prudent strategy is to simply buy the overall market right now. What I mean by that is to consider putting some money to work in exchange-traded funds (ETFs) such as the Vanguard S&P 500 ETF (VOO 1.34%), SPDR S&P 500 ETF Trust, or the Invesco QQQ Trust.
NYSEMKT: VOO
Key Data Points
Each of these funds provides investors with diversified exposure in the form of multiple industry sectors and a healthy mix of growth and value stocks. And as the chart above makes clear, the S&P 500 and Nasdaq tend to exhibit strong rebounds following periods of economic turmoil.
I think that using a strategy of dollar-cost averaging into these major indices will wind up being a savvy move years down the road.
