Less Dumb Investing

Let’s paint a picture: Trump issues tariffs out of nowhere. The stock market drops. Then he makes some kind of demand—domestic production, corporate promises, spending cuts, whatever. The market rebounds.

That’s likely the trajectory of Trump’s latest tariff push. He just hit Mexico and Canada with 25% tariffs. The Mexico move makes sense—at least politically. Trump’s crusade against immigration aligns with pressuring Mexico, since most undocumented immigrants cross the southern border. But the Canada tariffs? That’s more of a head-scratcher. Then again, I don’t pretend to understand the motivations of a man determined to tear up and replace his own deal.

Where I can provide some guidance is on history—and what the latest stock market moves mean in the broader context. The NASDAQ and QQQ have taken particularly hard hits, with the NASDAQ officially entering correction territory before the S&P 500. But let’s break this down: the scenarios at play and the likely market outcomes.

1. Tariffs go into effect and stay here

Let’s say that the tariffs are a new permanent fixture of American life, and all products are more expensive. Inflation goes up as a result, so the Fed raises the overnight funding rate. Indexes that rely on future earnings go down more than indexes that are, relatively speaking, more focused on the present. In this scenario, it makes sense the tech-heavy QQQs get hit.

2. Tariffs come, and then a few months later, they go

History doesn’t repeat itself, but it rhymes. The last time around, Trump issued tariff threats but then backtracked as “deals” came into effect. This is the most likely outcome. But if we focus on the present, it means that sectors that rely on imports, exports, and manufacturing should be hit harder. The NASDAQ is much more based in services than the other indexes. Tech relies on everyone else, especially from an advertising perspective, but its revenue is not directly related to tariffs. Advertising remains strong regardless of economic factors, barring a recession.

3. Everyone dies, and we go into recession

If that happens, the stock market crashes but then the Fed cuts rates. Stocks with earnings farther in the future go up in price.

In these three scenarios, the most likely outcome is that the fed holds rates steady, Trump reaches deals, and everything goes back to relative status-quo. If that’s the case, then the QQQs have the most to gain from a return to normalcy. Or at least, short the S&P and long the NASDAQ.