MW What 150 years of stock-market data says about performance during high-tariff eras

By Steve Goldstein

High tariffs had more or less disappeared for the last 75 years until the Trump administration brought them back.

But a unique database of investment returns that dates back to 1875 shows that high tariffs can coexist with stock-market gains.

Northern Trust Asset Management combined standard academic databases with hand-collected data from 1875 to 1926 on all key U.S. stocks over that time.

Mining that database, they found that equities have performed as well in previous high-tariff periods as they did over the whole time period - gaining 5.3% a year after inflation between 1875 and 1913, and then another 5.1% during the Smoot-Hawley period between 1930 and 1945.

Stocks returned 5.1% a year between 1875 and 2024, according to the Northern Trust data.

Bond returns were more modest and gold posted negative returns between 1875 and 1913.

The firm's quantitative-strategies team, led by Guido Baltussen, discussed why it was that stocks can perform well. Import tariffs averaged between 30% and 50% between 1875 and 1913, were lowered, and then brought back to 45% during the Smoot-Hawley period.

"Elevated tariffs often increase input costs, compress profit margins, and heighten macroeconomic uncertainty - conditions under which investors tend to favor more resilient, lower-risk companies. This supports low-volatility and quality factor outperformance," the team said.

"At the same time, tariffs can weigh more heavily on cyclical and globally integrated firms, which are often concentrated in value and small-cap segments. However, when these factors are priced at deep discounts, they can still deliver strong returns, particularly if policy shocks reverse or are already priced in - explaining their resilience even in high-tariff regimes."

The economy also has performed well, which is known as the "tariff-growth paradox." They noted the economy is now far more interconnected than in the 19th and early 20th centuries. "If the goal of protectionism is to improve trade balances, history offers some precedent - but at the same time, global trade has become a much larger share of world GDP. This suggests that the opportunity cost of retreating behind protectionist walls may be considerably greater today than it was in the past," they said.

The S&P 500 SPX this year has declined by 5%.

The iShares EDGE MSCI Minimum Volatility ETF USMV has gained 4% and the iShares Edge MSCI USA Momentum Factor ETF MTUM has edged up 1%, while the iShares Edge MSCI USA Value Factor ETF VLUE has been flat and the iShares Edge MSCI USA Quality Factor ETF QUAL has dropped 5%.

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 01, 2025 08:33 ET (12:33 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.