The S&P 500 has fallen 10% from recent highs and is now down 5% on the year. While the catalysts are different, this recent action reminds us of 2022. Back then, decades high inflation and a swift policy pivot by the Fed sparked a 25% drop in the S&P 500. Today, uncertainty and negativity around President Trump’s trade policy is putting pressure on US stocks. What’s interesting to us is how similar the setups were going into each year (2021 vs 2024) and how quickly the market has readjusted based on messaging (from the Fed in 2022; from the administration in 2025). Let’s take a look.
Both 2021 and 2024 ended strong
Both 2021 and 2024 saw the S&P 500 finishing the year near record highs. And each year had widely known issues that were being shrugged off at the time. In 2021, inflation started to surge, but the Fed was describing inflation as “transitory,” which helped the market remain buoyant. In 2024, after Trump won the election, everyone knew the threat of tariffs loomed. However, the market believed such tariffs would mainly be used as a negotiating tactic to secure favorable trade deals with US allies.
Beginning in March 2022, as inflation continued to accelerate, the Fed pivoted to a more aggressive stance in its battle against inflation. Already down 6% going into that March 2022 announcement, the S&P 500 would then go on to fall another 15% in the coming months.
This year, the S&P 500 rose through mid-February after the President paused tariffs on Mexico and Canada. Yet, just a few weeks later those tariffs were reinstated and have served as the main catalyst for the current 10% decline in the S&P 500. Unfortunately, at the time of this writing, the tariff uncertainty hasn’t gotten any better.
Unfriendly messaging is hurting the market
The other similarities between today’s market and 2022 is how various officials are communicating to the market. In August 2022, after the S&P 500 had rebounded 15% from a June 2022 low, Fed Chair Jay Powell noted the inflation battle was far from over. Specifically, he said there could be “some pain” ahead for US households as the Fed continued the battle against inflation.
In subsequent reporting after the August “pain” speech, it was revealed that Powell and the Fed had grown concerned by the market’s rally at the time. In effect, a rising stock market while the Fed was trying to bring down inflation could actually stimulate more inflation through the wealth effect and easier borrowing. The market got the message. Following Powell’s August speech, the S&P 500 would fall 18% before bottoming for good a few months later that October.
Today, negative messaging is again hurting confidence. The market came into the year thinking Trump would use the stock market as a real time scorecard for his policies. The idea being that Trump would back off policies that appeared to be causing stocks to sell-off. That line of thinking has been thrown out the window as Trump has said things like, “…you can’t watch the stock market.”
In addition, key cabinet members like Treasury Secretary Scott Bessent have warned of a “detox period” for the stock market and economy. Most recently, National Economic Council director Kevin Hassett, who Trump appointed, said to expect “some uncertainty” around trade policy.
Why this isn’t a 2022 repeat
As we make the comparisons to 2022 you might be thinking: well that wasn’t a good year… stock markets around the world delivered negative returns and so did the bond market. There’s one key difference between now and then: diversification is working. While the S&P 500 has fallen this year, international stocks and bond prices have risen (data through march 14th):
Let’s compare this to the same period in 2022:
In short: 2025 so far is NOTHING like the pain we were dealing with in 2022. Unlike back then, diversification is working. A great deal why is bond yields. In 2022, money market yields were 1-2%, today they are between 4-5%. It is much easier to deal with volatility from your stock investments when you know you are getting 4%+ from your “safe” investments.
In effect, elevated bond yields today versus 2022 are likely helping the broader market stay calmer. International stocks are also positive on the year, up 8% compared to being down more than 10% through the same period in 2022. That’s because in 2022 inflation was a global issue, not just something that affected the US.
Today, the negative overhang of uncertain trade policies in the US is creating an opening for Europe and China to forge closer ties. Put simply, things look less antagonistic on trade, at least in the short-term, everywhere else but the US.
How long this lasts
Ultimately, the S&P 500 looks like it could stay negative on the year through at least the first half of the year. A change in messaging and tariff policy out of the US, while positive, would likely be met with skepticism by the market. Like a scorned girlfriend, the market probably has some trust issues with the Trump administration at this point. That will only be repaired with time as policies become more consistent or the economy shows that it continues to chug along.
The good news is that unlike the bear market of 2022, the issues plaguing US stocks are not also affecting the rest of the world. In addition, elevated bond yields and a Fed that is not raising rates, is helping bonds perform well so far this year. That probably continues too.
All in all, we recommend sticking with a diversified approach and doing your best to drown out the noise. Things are really not as bad as they may seem.
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