If there’s one word that defines the 2025 stock market thus far, it’s volatility. Tariffs and geopolitical tensions have led to sharp declines in popular benchmarks like the S&P 500 and Nasdaq Composite, and many investors worry about the stock market crashing.
This guide examines whether and when the stock market could crash and reveals strategies to protect your wealth.
Table of Contents
Is the stock market crashing, and why?
A stock market crash is defined as a 20% decline in a broad market index within a short time. The S&P 500 is a good benchmark for assessing whether a crash took place since it gives investors exposure to various sectors and holdings.
As of April 24, 2025, this textbook definition of a crash has not occurred, but the index is down by more than 10% year to date. It currently trades at the same level as it did in May 2024. Many factors determine the stock market’s performance, but tariffs are overshadowing all of them.
How bad are the tariffs?
The stock market started strong amid President Trump’s second term. However, investor sentiment soured when he announced tariffs, and many billionaire investors have recently sounded the alarm about them.
Billionaire Ray Dalio worries that the tariffs can trigger an event worse than a recession. JPMorgan Chase CEO Jamie Dimon stated that a recession is the likely outcome of Trump’s tariffs. Hedge fund chief Bill Ackman also warned that tariffs can have devastating effects on businesses and consumers.
Trump aims to use tariffs to generate additional revenue, eliminate income taxes, and boost domestic companies. However, it’s guaranteed to hurt corporations that rely on the global economy to deliver exceptional financial growth.
Nvidia, for example, is one of the many corporations feeling the heat. The chipmaker expects to take a $5.5 billion hit due to lost sales in China.
Will the stock market crash? 2025 predictions
Dalio, Dimon, and Ackman predict a recession due to tariffs. However, some investors view the dip as a long-term buying opportunity, just as the Great Recession and the 2020 flash crash proved.
Any moves Trump makes to ease tensions can also boost the stock market. Investors saw that firsthand when Trump announced a 90-day delay on tariffs on every country except China.
Inflation and interest rates
Inflation hasn’t soared as much as people expected during Trump’s second term. The March CPI reading showed 2.4% year-over-year growth, which was down from the 2.8% year-over-year growth rate that was reported in February.
If inflation stays tame amid the tariffs, the Federal Reserve may have the flexibility to lower interest rates. Sharp rate cuts can pave the way for a stock market recovery like in 2019. The next few months will give a better indicator of how tariffs affect inflation.
However, if inflation picks up, it limits the Fed’s ability to reduce interest rates. This scenario can create more pressure on stocks. A higher inflation rate could force the Fed to raise interest rates, which would further reduce stock prices.
When I work with clients during a volatile market, the key is to listen carefully to their thoughts and concerns without judgment or relying on industry jargon. It’s essential to understand the human side of investing and to coach clients through periods of volatility with empathy and clarity.
We focus on their comprehensive financial plan, not just individual investments. Together, we review their asset allocation to ensure their accounts remain aligned with their overall goals and the specific time horizon associated with each objective. A comprehensive financial plan serves as a foundational guide, helping you navigate market fluctuations with confidence.
Will the stock market recover?
The time it takes for the stock market to recover depends on several factors. While the 2020 flash crash saw an instant recovery due to record-breaking stimulus money and near-zero interest rates, it took five years for the S&P 500 to reclaim its highs after the Great Recession.
Recoveries don’t always go smoothly. The dot-com bubble was a surge in tech stock prices driven by internet hype in the late 1990s. When it burst in 2000, it triggered a “lost decade,” where the S&P 500 took years to recover its previous highs.
There is speculation that the Federal Reserve will need to use quantitative easing—when the Fed buys government-backed securities to increase the money supply and stimulate the economy—to sharply reduce rates before $9.2 trillion of U.S. debt becomes due at the end of the year. Both of those scenarios can result in a stock market rally.
However, not all investors are waiting to find out. Investors have been pulling money out of ETFs as they try to reduce risk in their portfolios.
What to do when the market falls suddenly
The stock market has endured many sharp corrections and crashes. Here’s what you should consider doing when the market falls.
✅ Do not panic
This is the most important detail because the stock market has historically recovered from its corrections. While 2023 and 2024 were relatively good years for the market, many indexes performed poorly in 2022.
During his first term, President Trump also used tariffs, which caused the stock market to weaken in 2018. However, it recovered the following year, in part due to quantitative easing.
✅ Reassess your risk tolerance
If you are panicking, it likely means you have too much money in the stock market. For instance, an investor worth $1 million and only $1,000 invested in the stock market probably isn’t thinking much about it.
However, if the same investor has a majority of their money in the stock market, the tariff news may be keeping them up at night. It’s only good to put money into the stock market if you don’t plan to tap into it for the next five to 10 years.
Even if you suddenly assess that the stock market is too risky, you still shouldn’t rush to sell. One problem investors face is selling during a panic and then quickly buying back into stocks because of one or two “green days”—periods when the market temporarily rebounds and stock prices rise.
It’s still wise to map out your long-term financial goals, so you have a clear understanding of your timeline, priorities, and how much risk makes sense for your situation, especially during periods of market volatility.
✅ Buy the dip if you can
Buying the dip—that is, purchasing stocks after they’ve fallen in price—can feel difficult when the stock market is falling, but adopting this contrarian mindset has helped investors realize substantial gains following downturns like the Great Recession and the 2020 flash crash.
Accumulating more shares makes the most sense for young investors who won’t need to touch their stocks for a while. Older investors may want to buy bonds and other investments that offer lower, safer returns.
You shouldn’t get into debt to buy a dip or invest money that you may need in a few weeks to cover living expenses.
An emergency fund is crucial—not just during market volatility, but at all times. I recommend maintaining at least three to six months’ worth of living expenses if you’re still working and at least 12 months’ worth if you’re retired.
A well-funded emergency reserve provides peace of mind and reduces the likelihood of needing to liquidate investments during a downturn, helping you avoid locking in losses.
How to protect yourself against a stock market crash
You don’t need to watch helplessly as your portfolio declines due to a market correction. There are several strategies you can use to minimize your losses during a stock market crash.
✅ Hold off on additional stock investments
You can still invest in stocks if you want, but consider being less aggressive with your stock purchases if you’re closer to retirement. For instance, an investor who wants to reduce risk may go from investing $1,000 per month to investing $500 per month for a few months and saving the other $500 as cash or cash equivalent.
The stock market downturn might bottom by the end of the year. It took several months for the market to bottom when Trump used tariffs in his first term. You can then invest more money when significant positive developments emerge, such as the Fed using quantitative easing or the U.S. and China reaching a meaningful agreement.
✅ Invest in short-term bonds and CDs
Short-term bonds and CDs won’t produce high returns, but they will give you something. Investing in assets with three- to 12-month maturities will give you extra interest. Furthermore, your money may become accessible just as the stock market starts its recovery.
✅ Buy gold and other precious metals
A weakening U.S. dollar isn’t good news for stocks, but it’s great news for gold. Precious metals gain value as the U.S. dollar loses value since it now requires more U.S. dollars to buy the same amount of precious metals.
You can invest in physical gold, precious metals ETFs, and gold retirement accounts. It’s easy to set up a gold IRA if you want to accumulate precious metals while capitalizing on tax benefits. Even if you want to start with a small amount, we recommend Advantage Gold for small investments. If time is of the essence, Patriot Gold Group earns our “Best for Quick Setup” designation.
Here’s a closer look at all the top gold IRA companies to consider.
Diversify your portfolio
A diversified portfolio is less vulnerable to a market downturn. If one stock or sector performs poorly, other assets can minimize the losses. Investors can diversify into many individual stocks, but it’s much easier to diversify with ETFs.
Investors can select ETFs based on sectors, investment themes, objectives, and other factors. However, you should check each ETF’s expense ratio to see how much you’ll pay to hold on to the shares.
To maintain proper portfolio diversification, limit individual stock holdings to no more than 5% of your total portfolio, and limit exposure to any single mutual fund to no more than 15%.
FAQ
Should you take your money out of the stock market now?
In most cases, no. Pulling your money out during a market downturn can lock in losses and hurt long-term gains. If you’re investing for retirement or long-term goals, it’s usually better to stay invested and ride out the volatility. However, if you need the money soon or your risk tolerance has changed, talk to a financial advisor about adjusting your strategy.
Is a 401(k) affected by the stock market?
Yes, most 401(k)s are affected by the stock market because they’re often invested in mutual funds, which include stocks and bonds. When the market rises, the value of your 401(k) tends to go up. When the market drops, your 401(k) can lose value. That said, the long-term nature of 401(k) investing is designed to help weather short-term volatility.
Do you lose all your money if the stock market crashes?
Not necessarily. A market crash typically causes a sharp drop in the value of investments, but you only realize losses if you sell during the downturn. Historically, markets have recovered over time. Staying invested and diversified can help reduce the long-term impact of crashes.
How long did it take the stock market to recover after 2008?
After the 2008 financial crisis, the U.S. stock market (specifically the S&P 500) hit bottom in March 2009. It took about four years—until early 2013—for the S&P 500 to fully recover to its previous high. However, many investors who stayed invested saw significant gains in the years that followed.
What was the largest drop in the stock market?
- Date: March 16, 2020
- Index: Dow Jones Industrial Average (DJIA)
- Drop: −2,997.10 points (−12.9%)
This record-setting point drop occurred amid the COVID-19 pandemic, reflecting investor panic over the rapidly spreading virus and its economic implications. The Federal Reserve’s FEDS Notes discuss the market turmoil during this period, noting that “the Dow Jones Industrial Average in March 2020 posted its largest single-day drop since the 2008 global financial crisis.”
