Market Could Drop 20% as Investors Worry

By Douglas A. McIntyre Published Feb 18, 9:15AM EST

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There are worries that inflation will trigger a sharp drop in the S&P 500 this year.
Threatened tariffs on imports could cause a spike in household costs.

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Market Could Drop 20% as Investors Worry — © grinvalds / Getty Images

The S&P 500 dropped 21% in the first half of 2022, and there are worries that triggers for that are in place again. Inflation for that year was 8% but was higher in the early months. The first phases of the Russian invasion of Ukraine drove part of this. Another reason, according to some economists, was the stimulus programs the Biden administration put in place. Inflation may be an issue again in the first half of 2025.

If there is sudden inflation, tariffs will almost certainly be the cause. Economists are mixed about the effect of 25% tariffs on imports from Canada and Mexico. Some believe the threat is a hollow one, just a bargaining tactic.

The U.S. Senate Committee on the Budget states that a 10% tariff on all imports and a 60% tariff on goods imported from China would raise Americans’ average household costs by $1,560. A Jeffries analyst said car prices could jump 6%, or $2,700. Prices of lumber, consumer electronics, and construction materials would increase sharply.

The American Association of Individual Investors says its members have flashed a bearish signal. According to The Wall Street Journal, almost 50% expect a market drop in the next six months, the highest percentage since November 2023.

The retreat in 2022 took the S&P 500 from 4,791 at the end of 2021 to 3,585 in October 2022. From there, it has risen to 6,100 recently. Usually, a fast runup means that investors expect earnings in the next few quarters to be unusually strong. However, the rise slowed considerably in the fourth quarter of last year.

Inflation is the most likely reason for the S&P 500’s significant drop this year. The White House is likely to announce the size of tariffs in the next few weeks. If they are high, look out below.

The S&P 500 Dropped 21% in 2022. It Could Happen Again This Year.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.