The stock market has been throwing a temper tantrum, fueled by fear of President Donald Trump’s tariff policy and the specter of an escalating global trade war.

Americans may wonder why trade policy has made stock investors so skittish.

At a high level, investors are nervous that a prolonged trade war poses significant risks for corporate profits and the U.S. economy, according to investment analysts.

That’s not a foregone conclusion, however. The Trump administration could strike trade deals and blunt the overall impact, for example, experts said.

“But if that doesn’t happen, the market may still be a long way from the bottom,” Thomas Mathews, head of Asia-Pacific markets at Capital Economics, wrote in a note on Monday.

It was the worst two-day stretch for the U.S. stock benchmark since March 12, 2020 — in the early days of the Covid-19 pandemic — and the fourth worst since 1950, according to Callie Cox, chief market strategist at Ritholtz Wealth Management.

Stocks briefly entered “bear market” territory — meaning they’d fallen 20% from their recent peak — during trading on Monday before paring some of those losses.

The sell-off came after Trump announced a sweeping plan Wednesday to put a 10% baseline tariff on U.S. trading partners. He set significantly higher rates for nations including China and traditional allies like European Union members.

Their scope caught many investors off guard.

The announcement “was more significant than most expected, so we had a material sell-off” in the stock market, Chris Harvey, head of equity strategy at Wells Fargo Securities, wrote in an e-mail.

The fear is that tariffs will dent growth for publicly listed companies and the broader U.S. economy. Wall Street has raised its odds for a U.S. recession.

Tariffs are a tax paid by U.S. companies that import goods from abroad, and they therefore raise costs for U.S. businesses. Companies may eat some of that cost to avoid raising prices for consumers, eroding profits.

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But economists expect businesses will pass at least some of the extra cost to consumers. The average household will lose $3,800 of purchasing power per year due to tariff policies announced so far, according to the Yale Budget Lab.

Consumers may pull back on spending, and lower sales would likely dent company profits. Companies may opt to lay off workers, further pressuring consumer spending, which accounts for about 70% of the U.S. economy.

Retaliatory trade measures compound the problems, economists said.

China put a 34% tariff on U.S. products after Trump’s announcement of “reciprocal” tariffs last week, and vowed it would “fight to the end.” Canada put 25% tariffs on a range of U.S. goods, while the EU bloc is readying its own 25% retaliatory duties.

(The S&P 500 was up over 2% Tuesday morning on rising hopes for trade deals with China and South Korea.)

Retaliatory tariffs make U.S. goods sold abroad more expensive, hurting export-reliant businesses — perhaps leading to layoffs and lower consumer spending.

“We expect many — if not all — countries outside the U.S. to adopt retaliatory tariffs of their own,” the Wells Fargo Investment Institute wrote in a note Friday.

Wells Fargo expects “significantly lower” growth for the U.S. economy in 2025 due to “unexpectedly aggressive tariff increases.” It lowered its target for gross domestic product to 1% from 2.5% this year.

For now, the economy isn’t yet showing signs of dramatic weakening, said Joe Seydl, senior markets economist at J.P. Morgan Private Bank. If tariff policy proves to be long lasting rather than temporary, the shock would likely cause a “mild” U.S. recession, he said.

“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” Federal Reserve Chair Jerome Powell said Friday.

The Fed may not cut interest rates as quickly as anticipated as a result.

The dynamic would likely keep borrowing costs higher for businesses, dampening growth prospects for those unable to invest in and expand their operations.

The first Trump administration put tariffs on about $380 billion of imports, in 2018 and 2019, according to the Tax Foundation. Now, there are tariffs on more than $2.5 trillion of U.S. imports — or, about seven times more.

Another difference is the White House’s public stance toward tariffs and communication about it, analysts said.

During Trump’s first term, there was level of stock market volatility the administration didn’t find tolerable, Seydl said. Now, there appears to be less concern about stock gyrations — which is perhaps the most important factor in the stock sell-off, he said.

“The capital markets (especially equities) are sending a signal to the Administration that all is not well and the probability of recession, job losses, and a negative wealth effect are all increasing,” wrote Harvey of Wells Fargo.

“The Administration has been somewhat dismissive of these signals, creating a negative feedback loop,” Harvey wrote.

Uncertainty around the framework, goals, potential duration and the White House’s economic tolerance regarding tariffs makes it difficult for investors to assess market risk, he added.

There’s a new generation of young investors on the scene just as a financial contagion is spreading.

“It’s very easy to see what’s happening in the market and say, ‘I got to get out,'” said Tim Ranzetta, co-founder and CEO of Next Gen Personal Finance, a nonprofit focused on providing financial education to middle and high school students.

However, most experts agree that taking a beating when stocks go down and then missing out on the gains when stocks go up is one of the worst things new investors can do in periods of extreme volatility.

That is why having at least a basic understanding of personal finance is a crucial lesson for those just starting out.

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Many studies show a direct correlation between financial literacy and financial success.

In fact, there is an economic benefit of roughly $100,000 per student from completing a one-semester class in personal finance, according to a 2024 report by consulting firm Tyton Partners and Next Gen.

“We say it’s $100,000 but as we start to see more and more young people investing, that number is only going to increase,” Ranzetta said.

Much of the value comes from learning how to avoid revolving credit card balances and leveraging better credit scores to secure preferential borrowing rates for key expenses, such as insurance, auto loans and home mortgages, according to Ranzetta.

However, lessons on investing pave the way to long-term wealth creation, said Yanely Espinal, Next Gen’s director of educational outreach. “Teaching students about the financial markets is the greatest asset for building wealth.”

While more students are benefiting from financial literacy courses in high school, there are still significant learning gaps, according to a new report by Junior Achievement and MissionSquare Foundation.

Roughly 40% of teens are worried they won’t have enough money for their future, the report found. At the same time, 80% of teens have never heard of a FICO credit score, developer of one of the scores most widely used by lenders, and nearly half, or 43%, believe that an interest rate of 18% on debt is manageable.

“It’s kind of hard to get ahead in life if that’s how you manage your finances when you get out in the adult world,” said Ed Grocholski, chief marketing officer of Junior Achievement USA.

Meanwhile, the trend toward in-school personal finance classes is picking up steam.

In March, Kentucky became the 27th state to require that high school students take a personal finance course before graduating, according to the latest data from Next Gen.

In addition, there are another 43 personal finance education bills pending in 17 states, according to Next Gen’s bill tracker.

Without a requirement, students are much less likely to have access to a financial education: Outside the states with a guaranteed course, less than one in ten students receive financial education before graduating, according to Ranzetta.

However, when states pass a personal finance guarantee, school districts — and teachers — must then implement it.

“As much as legislation is critical, it has to be about implementing the course with a high quality curriculum taught by a qualified and confident teacher,” Ranzetta said.

Teaching the 9.2 million public high school students in states that have a personal finance requirement would require a minimum of 23,000 educators, according to an estimate by John Pelletier, director of the financial literacy center at Champlain College.

“Home ec [home economics] teachers are a dying breed,” Pelletier said. “The issue isn’t that we don’t have teachers, what we don’t have is highly trained teachers because it is an orphan curriculum.”

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U.S. stocks saw wild market swings on Monday as the tariff sell-off continued.

For some investors, it may be tempting to head for the exits rather than ride those ups and downs.

Yet investors who sell risk missing out on the upside.

“When there’s a bad sell-off, that bad sell-off is typically followed by a strong bounce back,” said Jack Manley, global market strategist at JPMorgan Asset Management.

“Given the nature of this sell-off, that likelihood for that bounce back, whenever it occurs, to be pretty concentrated and pretty powerful is that much higher,” Manley said.

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The market’s best days tend to closely follow the worst days, according to JPMorgan Asset Management’s research.

In all, seven of the market’s 10 best days occurred within two weeks of the 10 worst days, according to JPMorgan’s data spanning the past 20 years. For example, in 2020, markets saw their second-worst day of the year on March 12 at the onset of the Covid pandemic. The next day, the markets saw their second-best day of the year.

Yet while investors who stay the course stand to reap the biggest rewards, we’re wired to do the opposite, according to behavioral finance.

Big market drops can put investors in fight or flight mode, and selling out of the market can feel like running toward safety.

It helps for investors to adjust their perspective, according to Manley.

It wasn’t long ago that the S&P 500 was climbing to new all-time highs, reaching a new 5,000 milestone in February 2024, and then climbing to 6,000 for the first time in November 2024.

At some point, the index will again reach new all-time records.

However, investors tend to expect tomorrow to be worse than today, Manley said.

It would help for them to adjust their perspective, he said.  

In 150 years of stock market history, there have been wars, natural disasters, acts of terror, financial crises, a global pandemic and more. Yet the market has always eventually recovered and climbed to new all-time highs.

“If that becomes what you’re looking at, kind of the light at the end of the tunnel, then it becomes a lot easier to stomach the day in, day out volatility,” Manley said.

When markets hit bottom at the onset of the Covid pandemic, Barry Glassman, a certified financial planner and the founder and president of Glassman Wealth Services, said he asked clients who wanted to cash out one question: “Two years from now, do you think the market is going to be higher than it is today?”

Universally, most said yes. Based on that answer, Glassman advised the clients to do nothing.

Today, the markets have not fallen as far as that Covid market drop. But the question on the two-year outlook — and the resulting response to generally stay put — is still relevant now, said Glassman, who is also a member of the CNBC FA Council.

It’s also important to consider the purpose for the money, he said. If a client in their 50s has money in retirement accounts, those are long-term dollars that over the next 10 to 15 years will likely outperform in stocks compared to other investment choices, he said.

For investors who want to reduce risk, it can make sense, he said. But that doesn’t mean cashing out completely.

“You don’t need to go to 0% stocks,” Glassman said. “That’s just not prudent.”