Tariffs, trade, and a bear market—what’s next?

The recent downturn in the Russell 2000 Index, which fell 9.5% in the first quarter of 2025 and 18.5% year-to-date, underscores significant market volatility and investor concerns. This decline, driven by uncertainties in US political, trade, and monetary policies, highlights fears of potential economic slowdown, recession, or stagflation. The announcement of widespread tariffs has exacerbated these concerns, suggesting continued downward pressure on stock prices across market caps as long as economic outlooks remain uncertain.

Despite the current challenges, there is a belief that long-term opportunities exist, particularly in small-cap companies with strong fundamentals now trading at attractive valuations. The market's volatility, while unsettling, presents a chance for investors to employ strategies like dollar-cost averaging to capitalize on lower prices. Historical data supports the notion that volatile markets can lead to higher-than-average subsequent returns, as evidenced by previous periods where small-cap stocks experienced substantial rebounds post-volatility.

The emphasis is on maintaining a long-term perspective, avoiding panic selling, and staying invested during downturns, as these strategies have historically contributed to successful investment outcomes. Small-cap specialists, with decades of experience navigating market corrections, advocate for seizing opportunities during market fear, reinforcing the importance of strategic investment during uncertain times. This approach aligns with the principle of being opportunistic when market sentiment is negative, a philosophy deemed crucial in the current environment.