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.

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