Tariffs, Tumult, and the Three Most Likely Paths Forward

The U.S. stock market is currently experiencing one of its worst crashes in history. And unfortunately, we’re not being dramatic.

Last Wednesday, so-called “Liberation Day” tariffs were officially announced; and the fallout was swift and brutal. On that Thursday and Friday, the S&P 500 fell more than 10% – something that has only happened five other times in the past 100 years:

• During 2020’s COVID Crash
• In the depths of the 2008 Financial Crisis
• On Black Monday in 1987
• When Germany invaded France in 1940 and began World War II
• During the Great Depression in the 1930s

What just happened was rare and meaningful. It was a moment where markets clearly said, “This trade war might actually change everything.”

But will it?

That’s the trillion-dollar question. And the honest answer is: no one knows for sure.

That’s because the wild card here isn’t just tariffs – it’s the unpredictability of the White House behind them.

One day, there’s talk of negotiations… The next, threats of 104% tariffs on China. 

For example, over the weekend, a viral post by hedge fund manager Bill Ackman that suggested a 90-day pause to calm markets gained traction. On Monday morning, stocks surged on a rumor that the White House liked that idea.

Then came the denial: “Fake news.” Tariffs are staying. 

More threats followed. The rally was erased, and stocks tanked again, sinking another 2% between Monday and Tuesday.

This administration is playing an erratic game. But our analysis suggests there are three distinct scenarios that could play out from here, each with very different implications for your money.

Let’s walk through them.

Scenario 1: Hardball Negotiation (50% Probability)

In this scenario, the tariffs are exactly what they appear to be: a negotiating tactic. Trump is trying to strong-arm America’s trading partners into better deals. Yes, it’s chaotic. But ultimately, it’s strategic.

You can see the signs of this approach:

• President Trump’s threat of an additional 50% tariff on China after their 34% retaliation
• Peter Navarro dismissing Vietnam’s offer to cut U.S. tariffs to 0% as “not enough”
• The White House insisting these tariffs are about “long-term fairness,” not short-term market impact

In this world, the tariffs are leverage, not ideology. And once new deals are struck, Trump will roll them back, markets will breathe a sigh of relief, and the global economy will resume its march forward.

What happens to stocks here? We’d expect more near-term volatility; possibly more selling over the next few days or weeks. Once deals are signed, a sharp, V-shaped recovery – and a full rebound into summer – is quite possible.

In this case, the playbook is:

• Stay defensive in the short term (cash, bonds)
• Watch for signs of real progress in negotiations
• When clarity arrives, rotate into growth, tech, and risk-on assets

We think this is the most likely path forward, which is why we’re assigning it a 50% probability.

Scenario 2: Tariffs As True Protectionism (30% Probability)

Now, in this scenario, Trump’s tariff policy is not just strategy. It’s ideology.

He doesn’t just like tariffs as a negotiating chip. He genuinely believes in them as a tool to reshape America’s economy, wherein tariffs bring jobs home, protect domestic industry, and realign global trade in the U.S.’ favor.

In this version of reality, the tariffs aren’t going anywhere. The White House might make a few token deals, but the big ones – the 54% on China, 46% on Vietnam, 20% on the EU – stick around.

This is the 1970s redux… Or worse, the 1930s. Global trade slows. Supply chains freeze. Inflation spikes. Corporate earnings shrink. The Fed can’t easily help without stoking more inflation.

This scenario results in a grinding, multi-year bear market.

What works here?

• Hard assets: Energy, gold, metals
• Domestic infrastructure: Think reshoring, factories, defense
• Dividend stocks: Not sexy but stable

What doesn’t?

• Multinational growth stocks
• Global consumer brands
• Anything reliant on cheap trade and smooth global logistics

This is a stagflation scenario, with slow growth, high inflation, and no easy way out.

We don’t think it’s the most likely path forward, but it’s definitely on the table. We assign this one a 30% probability.