Trump tariffs spark stock market dip. What it means for consumers, the economy
The stock market has tumbled since President Donald Trump announced sweeping tariffs Wednesday, with the S&P 500 flirting with bear market territory Monday and ending the day down 0.23%.
The recent drops have rattled investors. And while the stock market isn't a perfect representation of the overall economy, experts say even U.S. households that don't hold stock should keep an eye on its swings.
"People should avoid drawing premature conclusions about how tariffs will play out,” said Bill Adams, chief economist at Comerica Bank. But "the stock market sell-off is a sign to pay attention to what’s going on in the broader economy."
What does the stock market show about the economy?
Experts say the stock market can offer insights into investor confidence, and positive performance is often aligned with economic growth.
But with less than 15% of companies with annual revenues above $100 million public, according to a 2024 report from BlackRock and global private equity firm Partners Group, the stock market doesn't give a perfect snapshot of the U.S. economy's overall health.
Itay Goldstein, a finance professor at The Wharton School at the University of Pennsylvania, said the stock market can overreact to certain news, but there isn't "anything as powerful" when it comes to offering "a real-time signal about the economy."
"Seeing the stock market going down is a little unnerving because it suggests that people are becoming more pessimistic about the economy going forward,” said Goldstein.
That pessimism could have real-world implications, even among Americans who don't invest. Managers watching a stock market dip could pull back on investments, including hiring, Goldstein said. Consumers who see their 401(k) savings take a hit could reduce their spending, the biggest driver to the country’s economy.
“For wealthy consumers who have a lot of their savings invested in the stock market, a stock market sell-off could be a reason to drive on their next vacation instead of flying, or to put off buying a new car,” Adams said.
Policymakers have also been influenced by market performance, Goldstein said, although so far Trump has indicated that he is committed to tariffs. The president defended the increased duties Monday and urged Americans via a social media post to be "Strong, Courageous, and Patient."
“It’s too early to really say whether this will turn into a prolonged hit to the economy, or something that might flow over with more limited impact,” Adams said. But “for average Americans, the stock market sell-off is going to affect them more because it’s a sign of what might happen in the private sector later this year and next year.”
How many households are exposed to the stock market?
Federal Reserve data shows a growing number of households are exposed to the stock market, with 58% of U.S. families having some sort of investment in stocks in 2022, compared with 53% in 2019.
“Stock market participation has increased over the years in the U.S., so there are a bunch of consumers that have stock market portfolios. So they’re going to feel some pain,” said Geert Bekaert, a finance and economics professor at Columbia Business School.
Retirement plans such as a 401(k)s or IRAs were among the most common routes to investing, with just over half (54%) of American families having some sort of retirement plan in 2022, according to Fed data. Less than a quarter (21%) of families owned shares directly.
But the wealthiest households continue to dominate the stock market. Fed data shows the top 10% of households own over 85% of corporate stock as of the fourth quarter of 2024.