Over the past six months, the U.S. stock market has experienced pronounced fluctuations that may raise concerns for inexperienced investors. The turbulence initiated on April 2, when the Dow Jones Industrial Average saw a significant decline of 10%. These changes in stock prices are influenced by the fundamental economic principle of supply and demand, where investor reactions vary based on the perceived positivity or negativity of news regarding their stocks. This behavioral response, known as negativity bias, often compels investors to hastily withdraw their investments when confronted with unfavorable developments.
On April 2, then-President Donald Trump announced the implementation of a minimum 10% tariff on nearly all countries, a move dubbed the Liberation Day tariffs. This declaration resulted in an immediate drop in stock prices, with the market continuing to be affected as Trump adjusted his tariff policies over time.
Baylor University Finance Professor Dr. Erik Davidson explained that international issues, especially trade announcements, have drawn considerable attention in recent market activity. “Generally, tariffs are considered to be negative for economic well-being,” Davidson noted, adding that global stock markets reacted accordingly by plunging following the announcement. However, he also pointed out that the U.S. stock market managed to rebound significantly afterward.
Davidson remarked on the psychological nature of investing, indicating that it’s common for individuals to impulse-sell when confronted with a declining market. “Our fear of missing out entices us to buy when stocks have gone up, while our fear of loss causes us to sell when stocks have gone down,” he explained.
For young investors, including college students, the volatile market can appear daunting. Junior Tristan Demotica from Kapalua, Hawaii, reflected on his apprehension following the initial tariff announcements. “At the beginning, I was feeling kind of worried, especially with Trump going back and forth, which made the market very, very hesitant on certain equities,” he conveyed.
Despite the market’s inconsistencies, Davidson encouraged student investors to maintain a long-term perspective. He suggested that young investors should focus on their financial objectives, emphasizing that although they may not have substantial funds to invest now, they have the advantage of time on their side. “Students should generally be making long-term focused investments,” Davidson said, reminding them that their futures allow for patience in the pursuit of returns.
