There was a better way to accomplish everything President Donald Trump did that caused a 10.5% decline in two days and left us wondering whether we could still crash Monday or later this week. All he had to do was agree with, well, himself because he repeatedly said he was going to announce “reciprocal” tariffs on imports from other countries — basically, whatever they charged us, we would start to charge them. No doubt after spending some serious time with trade advisor Peter Navarro, that changed to being punitive, wide-ranging tariffs on dozens upon dozens of U.S. trading partners. The result was a shock to the system that could reorder what we buy and certainly precipitate more selling. Let’s take the idea of bailing on the market completely off the table, though. Of course, we could face more downside — maybe even a lot more downside — if there is no negotiation that lowers the tariff rates from what Trump announced Wednesday night. But I think unless you need money in the next year, it would be ill-advised to sell from these levels. If anything, I am interested in buying the non-tariffed winners as the S & P 500 futures bring all stocks down. Those companies will ultimately prevail, and yet you would be selling them as if they will fail. That’s just not right. So, any sort of wholesale selling could instantly be proven wrong, especially if our mercurial president changes his mind. It is all about the math. If we want to be clinical — and we should in this highly emotional moment — two months ago, we had our sights set on the S & P 500 going to 6,500 at a minimum and, who knows, maybe 7,500 was possible if we got some terrific deregulation along with some nice tax cuts, some spending control. There was a word in which things could really go gangbusters. Now? We need to rethink everything because of the tariffs. The price-to-earnings multiple on the S & P 500 has already come down thanks to the recent selling — it had been trading at north of 22 times earnings — and we’re also going to see actual earnings estimates be revised lower to account for the tariffs. That could add further pressure to the market. I think it is reasonable that we could see an 18 multiple on $220 in projected S & P 500 earnings, which takes us down to roughly 4,000 — a little over a thousand points below where the index closed Friday (current consensus for 2025 earnings is around $268, according to FactSet). If we get there Monday — and I think that would happen if we had a Black Monday-type plunge — I think you can nibble. However, you have to be ready for a possible European response that will hit us again. That would make the multiple and the earnings estimates a moving target to the downside. We don’t want to find ourselves down to 3,500 on the index — off 1,500 points from 5,000, which is a pretty nasty haircut. I want to take that off the table, but I really can’t if our president doubles down after Europe retaliates, and I fully expect it will retaliate. Let’s go through some pros and cons, and then place some odds on what could happen. The cons I will start with the cons as they are both myriad and noisy. The first is a possible recession as the reordering takes place. The tremendous fear injected by the surprise factor has so many CEOs of businesses, especially large businesses, fearful that enterprise spending will drop. In turn, individual people who are highly levered to their stock-market savings will cut back spending in their own lives. These dynamics can bring on a recession, albeit one that can be blunted by the Federal Reserve easing monetary policy with rate cuts. The U.S. central bank has ample ability to stop a recession unless — this is the No. 2 con — we get a huge bout of inflation by our international companies that either have to pass on their tariffs — think Club name Apple , the automakers and raw materials that we get from our trading partners — or they just don’t sell enough product, which means stagflation, thanks to slower economic growth, and earnings shortfalls. The third con is tricky. Because of the meat-ax way Trump approached things, we are most likely not done in seeing a response from other trading partners. China has already retaliated with a 34% duty on U.S. imports. You may want to start aggressively buying stocks Monday, but you must remember that any day, we could see retaliation from Europe, which will drive the market lower. That’s the principal reason I can’t say go all in. Why not wait for Europe’s response before buying something? Even if Monday’s session ends up being not so bad, that doesn’t mean things couldn’t get worse later in the week when the expected European hit occurs. Remember, our tech companies do a lot of business in Europe and, with the exception of Amazon, they could all be hurt rather hard. Finally, let’s be realistic, unlike the White House. We are not capable of rapidly changing supply chains or instantly building more factories in the U.S. It will take years. The gap is disconcerting, and we should recognize that President Trump has dramatically overstated our ability to be nimble or have the workers needed to pull off this transformation. To go full circle: had Trump done truly reciprocal tariffs, had he even started with 10% tariffs and then announced a plan to steadily increase them over time to 20% or even 30%, I would get it. The problem, of course, is that U.S. trade deficits were built up over a long time and caused by a decision to favor free trade over fair trade. It is unfair and unreasonable to ask American businesses that were playing by the rules to stop doing so, reverse course and still keep their current structure. There will be shortfalls galore and necessary downsizings that could end the economic expansion we have enjoyed. And let’s not forget that selling begets selling as the levered hedge funds and other influential institutions have to do some selling. They always accentuate things and not in a positive fashion. The pros The pros are a little more straightforward. First, we are already firmly in correction territory, but a huge number of stocks, especially technology stocks, have at least 50% from their 52-week highs. And there are many good companies on that list, including Dell Technologies , which is in the Club’s Bullpen watchlist. Second, we have some countervailing forces that are worth noting. Most notably, there’s been a decline in bond yields, which makes dividend stocks more appealing and increases the likelihood of a housing recovery. The latter possibility was reflected in Friday’s strength in homebuilding stocks . Three, there is a commonsense reason for Trump to try to reset trade; he’s just going about it the Navarro way of ripping the Band-Aid off — except it is taking too much skin. A more nuanced approach — perhaps one advocated by the Department of Commerce — would allow for some negotiation that would keep high tariffs on anything thought to be made in China that ends up here via transshipment, along with some exemptions for American companies while they work to move production back to the U.S. That would still result in a hit to earnings, but at least it would be a phased one. The most important and salient point is that since 1981, there have been six market downturns of any consequence. In most cases, it paid to buy stocks — not sell them — right into the teeth of the decline and you made excellent money a year later, sometimes even before that. At the index level, it took a few years for the S & P 500 to get back to where it traded before the tech bubble burst in 2000. That also did not occur around the Great Recession. Then, you had to wait around six years before you were back to even. I said in early October of 2008 that if you needed your money any time in the next five years you should take out of the market. The S & P 500 then proceeded to lose another third of its value. It bottomed, as we know, in March of 2009. But you didn’t get back to even for most stocks until six years later. I think our institutions are much stronger now. There is much less leverage in the system. The companies have fabulous balance sheets. The financials are well-capitalized. And employment is very strong. We can handle a big spike in unemployment. The odds Now, let’s put odds on all of this. First, on whether to buy tomorrow: I think there is only a 25% chance we have hit a bottom because of the possible European retaliation and the potential earnings shortfalls and pessimistic guidance we will see from many companies in the coming weeks. That makes buying into anything but S & P 500 levels below 4,000 seem risky. We need to see earnings estimates get cut and valuation multiples lowered before we get to where I would countenance some buying — although, as always, it could be case by case if some of our stocks really nosedive and are very far from their highs. Second, on whether to stand pat with some cash to layer into the market as first-quarter earnings season goes on: Given how this pattern has worked, even if we went into recession — taking a 2007-style situation off the table — you have a 50% chance that this option works well. Remember, though, there will be pain on paper, but no actual losses unless you chose to realize them by selling because you need that money for the next year. Third, on whether to sell most of your holdings: This is the severe recession scenario, which I have a hard time believing in. You would have to expect a 25% decline in the averages. That seems steep to me but it could happen. However, I only want to give it a 25% chance of occurring, given the Fed’s ability to maneuver even in a somewhat stagflationary moment. The Fed has the luxury of saying the tariffs are a one-time only price increase and can be dealt with over time. Now where does this leave us? We do nothing much at all until we are near 4,000 on the S & P 500 because we don’t want to get walloped by Europe. We can’t be fearful because that makes no money. We can’t be sanguine because that loses us too much money. Let the S & P 500 levels, the earnings estimates, the valuation multiples tell the story. Right now, it’s not a pretty one. The heels are too dug to make that happen. We just don’t want to compound the situation. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
US President Donald Trump speaks to the press as he departs from the South Lawn of the White House in Washington, DC, on April 3, 2025.
Saul Loeb | Afp | Getty Images
There was a better way to accomplish everything President Donald Trump did that caused a 10.5% decline in two days and left us wondering whether we could still crash Monday or later this week.
