The S&P 500 Went for a Roller-Coaster Ride During Trump's First 100 Days in Office. What Can Investors Expect for the Next 100 Days?

President Donald Trump promised to shake things up once he took office, and boy, did he. Trump imposed sweeping tariffs on goods from most countries in an attempt to transform decades of globalization that he believes has made global trade unfair for the U.S.

The extent of the tariffs in the initial April 2 announcement sent stocks plunging, and both the S&P 500 and Nasdaq Composite indexes entered bear market territory that month. Stocks then rebounded quickly once Trump announced a 90-day pause on tariffs for most countries, so the administration could negotiate trade deals.

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Even with the rebound and a nine-day winning streak as of May 2, the S&P 500 still turned in its worst performance in a president's first 100 days in office since 1974, falling about 8%. It's been a roller-coaster ride for investors in the first months of Trump's second term, but what can they expect over the next 100 days?

Trade deals and China negotiations are key

The Trump administration is 24 days into its 90-day tariff pause, as of this writing. While the administration has hinted at trade talks with major trading partners like India and Japan, nothing is official. Additionally, tensions with China have escalated. Trump raised tariffs on many goods from the world's second-largest economy to a cumulative 145%. Meanwhile, China hit right back, slapping U.S. imports with 125% cumulative tariffs in return, and the country's leadership has showed no signs of backing down.

However, media outlets have recently reported that Chinese officials are evaluating the possibility of beginning trade talks with the U.S. after senior U.S. officials inquired "through relevant parties multiple times," a spokesperson for China's commerce secretary said in a statement. However, the statement also said the U.S. must remove all unilateral tariffs if they don't want to "further compromise mutual trust."

Reaching agreements with key trading partners including China is going to be absolutely paramount to keeping the stock market on solid footing. Many companies have warned about the consequences of what might happen if Trump ultimately reinstates his high tariff rates. The fallout could mean higher prices and layoffs, while many market strategists were predicting an imminent recession. All eyes will be on these trade negotiations, which will likely keep investors on their toes over the next 100 days as the markets continue to swing wildly based on news headlines.

Official White House Photo by Joyce N. Boghosian.

Investors are on recession and stagflation watch

Even with the 90-day pause in place, the chance of a recession this year has increased as economic data continues to go back and forth. First-quarter U.S. gross domestic product (GDP) shrank 0.3%, although many economists have suggested the data could be skewed by businesses rushing to get ahead of tariffs, which led to a surge in imports. Countering fears of a recession, the April jobs report surprised to the upside, and unemployment remained at 4.2%, suggesting the labor market could be on better footing than some believed.

Still, if U.S. GDP shrinks again, the economy would be in a technical recession. Economic data has also started to show some cracks on the consumer side. Tariffs add another layer of uncertainty to the macro outlook. The Federal Reserve is content to wait and see what happens because it is worried that tariffs could lead to a rise in consumer prices.

The Fed doesn't want to see consumer prices rise while economic growth slows and unemployment rises. Such conditions would make it difficult for the Fed to achieve its dual mandate of full employment and price stability. This scenario could lead to stagflation, an even worse outcome as the Fed can't simply cut interest rates to stimulate growth without the risk of reigniting inflation and hurting the labor market.

All of these different factors set the stage for more volatility. Despite the recent stock market winning streak, the U.S. economy has a tight needle to thread, and no one can say for sure how Trump's tariff saga will end, if at all.

With this in mind, investors need to maintain a long-term outlook. Trying to rack up short-term wins in this environment is especially perilous. Historical data shows the longer you can keep your money invested, the better your chance of earning positive returns becomes. Stay calm amid the chaos and know that a patient approach should still win out in the end.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.