At best such actions are likely to bring short-term relief and at worst they may do permanent harm to your financial health. In contrast to this quick-fire approach, the most successful investment decisions flow from research and are made following careful consideration. Morningstar behavioral scientists Ryan Murphy and Danielle Labotka have written this useful guide to investing in these challenging market conditions.

What Tariffs Mean for the Economy

Although the sharp fall in in the Morningstar US Market Index last week was shocking to many investors, a decline of this magnitude is not unusual, especially given the high level of optimism that had been baked into many of the largest companies. However, the speed of the decline coupled with its origin in a deliberate policy choice is naturally unsettling. Preston Caldwell, Morningstar’s senior US economist, described the tariffs as “a self-inflicted economic catastrophe” that has increased the probability of a recession in 2025 to 40%-50%. You can find a summary of Morningstar’s research on tariffs and the investment implications here.

What Will the US Fed Do Next?

As expectations of lower growth prevailed over concerns about near-term inflation, the probability of at least two quarter-point interest rates cuts by the year end rose to 87.3% from 65.7% a week before, according to CME FedWatch. US Treasury bonds provided protection for investors as the yield on the 10-year bond fell below 4%. At current yields, Treasuries remain an attractively priced ‘insurance policy’ in the event of a further weakening in the economic outlook.

Tech Stocks Tumble

Within equity markets, the impact of the announced the tariffs was not uniform but varied across companies and sectors reinforcing the case for diversification. While US technology stocks led the decline, with index heavyweights Apple AAPL, Nvidia NVDA, and Broadcom AVGO all falling more than 13%, consumer defensives fared better as did other developed markets outside the US and emerging markets.

The impact of tariffs on major trading partners was mixed: Mexican stocks rose 3.5%, while Canadian, Japanese, and European companies fell sharply. The impact appeared muted on Chinese and Taiwanese stocks as the Chinese markets were closed for a holiday Friday. Asia experienced sharp falls on Monday, April 7, however.

Markets Remain Volatile

The benefits of diversification are best illustrated by the performance of the classic 60/40 portfolio represented by Morningstar’s Moderate Target Allocation Index which fell only 2.4% over the week and remains 5.4% higher than a year ago.

While markets are likely to remain unusually volatile in the near future, the dramatic price falls over the last week have undoubtedly created opportunities for investors to acquire good quality companies at unusual prices. To find these opportunities, check out these valuation tools and tune into Morningstar’s Q2 2025 Market Outlook webinar on Tuesday.

Inflation in Focus, Earnings Season Looms

This week, commentators will be eagerly watching the latest CPI measure of inflation released on Thursday with the core measure expected to moderate from 3.1% to 3% over the last 12 months. A higher reading is likely to exacerbate concerns among investors given the expectation of price rises over the next few months as tariffs take effect.

Alongside these economic releases, there are several speeches by Federal Reserve officials that will be scrutinized for changes in interest rate expectations and onset of the Q1 earnings season. Although companies habitually guide analyst forecasts lower ahead of results in a transparent attempt to generate a positive surprise when profits are announced, expectations have fallen further than normal this quarter indicating that business conditions have worsened since the start of the year.

Weaker results and less sanguine outlooks by company managements could ignite further falls in stock prices. It is important to remember that most of the value of a company lies in the future and so the impact on a company’s real value is likely to be muted. Large and growing discounts between price and fair value tend to provide very fertile soil in which to invest. You can follow these economic releases and earnings announcements on this calendar.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

Correction: In an earlier version of this article, the spelling of Preston Caldwell was incorrect.