2018 Déjà Vu: Is History Rhyming in the Markets?

Markets are facing echoes of 2018—trade wars, Fed uncertainty, and volatility. Here’s what investors need to know.

KEY TAKEAWAYS

• Markets in 2025 are facing many of the same issues as 2018—trade tensions, Fed uncertainty, and market volatility.
• The Fed in 2018 hiked rates aggressively; today, it's on pause, but conditions feel similarly restrictive.
• The 2018 trade war hurt earnings and triggered volatility—today’s tariffs could have a similar impact.
• The S&P 500 has gained 163.8% since the end of 2018, showing why staying invested through uncertainty pays off.
• Investors should stay focused on long-term goals despite short-term volatility.

MY HOT TAKES

• The Fed’s “pause” today might be just as restrictive as its hikes in 2018, given where rates currently stand.
• Markets love certainty, and tariffs—then and now—introduce the exact opposite.
• Powell’s 2018 pivot came too late. If conditions get worse, will 2025 force his hand sooner?
• The S&P 500’s long-term trajectory shows why timing the market is a fool’s game.
• The administration has a choice—slow-walk tariffs or risk market fallout. Betting on restraint might be optimistic.

Get back. It is 2018 and the Fed was in full hawk mode. It was tightening the Fed funds rate, and nothing was going to stop it. The Fed wasn’t raising rates to combat inflation, per se. Neither was it raising rates because unemployment was running too low, though it was on a rather steep decline. The inflation rate at the beginning of the year was right around the Fed’s 2% target and the unemployment rate was around 4%. The Fed had a little problem. The Fed Funds rate had been at almost 0% for a long time, and if the economy faltered, it would have very little dry powder in the way of easing, so it decided to get ahead of things and continue raise rates while the going was good. The going wouldn’t stay good for long.

January was a rather respectable month for stock returns and the S&P500 logged a 5.7% gain marking new all-time highs. President Trump was in the White House, and we had a fresh new tax package from a year earlier that would lower the corporate tax rate which was a windfall for stocks. Things looked pretty solid as we entered February. But then it happened. Tariffs.

President Trump announced tariffs on solar panels (30%) and washing machines (50%). These tariffs were not targeted at China only, but it was certainly in the site field. Volatility picked up in the markets as traders began to digest the implications of the tariffs. There was no Magnificent 7 yet, but there was FAANG. It was pulsing to new heights pulling the markets higher until the February tariffs hit. Fears of the aggressive Fed and the beginnings of a trade war would cause the index to take a spill and bring the broader indexes down with it. The S&P500 would lose -3.9% for the month. Then came March.

On March 1^st the administration announced tariffs on steel and aluminum (25% and 10%). Fears of a global slowdown began to enter the minds of traders and volatility picked up further. The Fed was still on its hawk campaign raising rates once again. Later in the month, Trump would slap a 25% tariff on $50 billion worth of Chinese products, including semiconductors. The reason for the tariffs was to protect American intellectual property. The markets may have agreed in principle, but not in practice, and tech stocks sold off in response. This marked the beginning of the trade war that would have broader consequences in the months to come.

In early April, China would officially retaliate with tariffs of it own. China’s first salvo was small, but it threatened to broaden the tariffs to include agricultural products, which were Americas primary export to China. Cracks began to emerge in the FAANGs with problems at then-Facebook and Trump began to pick a fight with Amazon. In early summer, the FAANGs tanked but the broader markets held up, and by early fall, the Nasdaq entered a correction. July, August, and September would see a deepening and broadening of tariffs lodged on Chinese goods. China did not remain idle. Each round of US tariffs was counter tariffed. A Soybean tariff was imposed on the US and eventually China forbade all purchases of US Soybeans causing buyers to switch to South American producers, leaving US farmers to take the brunt. That was an eye opener. US car manufacturers were also affected. China would step up the magnitude of the tariffs as well. Earnings estimates were beginning to weaken as a result of the ongoing trade war.

By the time Q4 was underway, uncertainty and even fear entered the markets. Apple warned of declining sales in China and Powell tough-talked the markets and raised rates by another 25 basis points. A government shutdown would begin on December 22^nd which would last 35 days, making the longest one in US history. Christmas Eve saw its worst decline in history falling by -2.7%. December would become the worst monthly loss since 1931 with the S&P500 giving up -9.2%. Chairman Powell’s inner dover was forced out of retirement as he was digesting his Christmas turkey and he famously pivoted to save the markets from further declines, but it was too late. The year ended in the red, driven by uncertainty, a trade war, a government shutdown, and declining corporate profits from tariffs and supply chain disruptions.

Why did I just take you on this sentimental journey? Well, on Wall Street we say that history doesn't repeat itself, but it does rhyme. We entered this year with markets running high and hot. The Mag-7 dragged markets higher and higher last year but are being challenged this year. Another trade war is looming. Though tariffs to date have been minimal, proposed and on-hold tariffs are far greater than ones levied back in 2018. The government is in the midst of massive restructuring, for lack of a better word. Inflation is sticky. Interesting sidenote on that. Inflation actually rose to 3.0% in the summer of 2018 (many economists believe the result of tariffs), which is precisely where inflation is today. The Fed is not in tightening mode, but it may as well be, having firmly announced a halt to rate cuts. Fed Funds today are at 4.5% while they topped off at just 2.5% in 2018. While we are on the topic of rates, mortgage rates were as high as 4.8% in 2018 but are currently at 7.1%. The unemployment rate is the same as it was in 2018 but may rise in coming months as a result of massive cost cutting in DC.

For the most part, markets are contending with very similar challenges as 2018 and we are not even done with February yet. The good news is that the Fed has plenty of room to ease credit if necessary. Additionally, the administration can slow walk tariffs and possibly help ease the “unknown” factor building up in the markets. I will let you decide the likelihood of that. I will offer you this. It is still early in the year and there is still likely to be stimulative legislation later this year. And I will give you the standard reminder to focus on the long term. This transition period is going to be messy with plenty of volatility to distract you. I think that the best way to help you with this is to remind you that the S&P500 has returned 163.8% since the close of 2018. Those years included a pandemic, a recession, a massive jump in inflation, and a massive tightening campaign by the Fed. I know that it is hard, but please stay focused, and continue to stay committed to your long-term goals.

YESTERDAY’S MARKETS

Stocks could not hold on to early gains, closing lower for the most part as uncertainty continued to weigh on investor sentiment. Bond yields continued their decline as investors sought safe haven in treasuries.

NEXT UP

• Conference Board Consumer Confidence (February) may have declined to 102.5 from 104.1. A miss here can be trouble for markets on edge. Conversely, a better-than-expected print can help teetering equities find footing.
• Fed speakers today include Logan, Barr, and Barkin.
• Today’s important earnings include Home Depot, Keurig Dr. Pepper, American Tower, Workday, Intuit, AMC Entertainment, Zoominfo, Coupang, Lucid Group, Caesars Entertainment, First Solar, and Cava.

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