Aswath Damodaran eyes tariff-led aftershock on US stock market: Magnificent Seven sheds 15% YTD, tech worst hit

Valuation expert Aswath Damodaran expects both positive and negative aftershocks on the US stock market triggered by US President Donald Trump's tariff hikes. In early April 2025, global financial markets were jolted by a sharp and unexpected escalation in trade policy. US equities had the biggest decline in dollar value terms, losing $5.3 trillion last week over global trade fears.

Trump announced sweeping reciprocal tariffs targeting nearly every major trading partner, a move that went beyond the tit-for-tat approach of previous years. Due to the US stock market crash, Wall Street's Magnificent Seven, down 15 per cent for the year (2025). Their losses last week, of nearly $1.55 trillion, were close in percentage terms to the losses in the rest of the market.

US stock market crash after Trump's tariff announcement

"Since talk of tariffs has filled the airwaves for most of this year, you may wonder why markets reacted so strongly to the announcement. One reason might have been that investors and businesses were not expecting the tariff hit to be as wide and as deep as they turned out to be," said the professor of finance at New York University (NYU) in his latest blog on the tariff-led market crisis.

The technology sector lost the most in value last week, both in dollar terms, shedding almost $1.8 trillion (and 11.6 per cent) in equity value, and consumer staples and utilities held up the best, dropping 2.30 per cent and 4.40 per cent respectively. In percentage terms, energy stocks have lost most in value, with market capitalizations dropping by 14.2 per cent, dragged down by declining oil prices.

Trump tariff aftershocks on US stock market

According to the valuation guru, the tariff story will have after shocks, with both negatives (other countries imposing their own tariffs, and the US responding) and positives (a pause in tariffs, countries dropping tariffs).

Those after shocks will create more market volatility, and if history is any guide, there is more downside than upside in the near term. “The market volatility can feed itself, as levered investors are forced to close out positions and fund flows to markets reflect investor concerns and uncertainty. If you add on top of that the possibility that global investors may decide to reduce their US equity holdings, that reallocation will have price effects,” said the valuation guru.

In the midst of a crisis, the market becomes a pricing game, where perception gets the better of reality, momentum overwhelms fundamentals and day-to-day movements cannot be rationalized. A market crisis will depend on cash needs, macro views, and investment philosophy. In the long term, he said the trigger event can change the economic dynamics, causing a resetting of real growth and inflation expectations, which then feed back into markets.

What can investors learn from a market crisis?

According to Damodaran, the lesson that many investors get out of looking at past crises is that markets come back from even the worst meltdowns, and that contrarian investing with a long time horizon always works. “While that may be comforting, this lesson ignores the reality that the fact that a catastrophe did not occur in the crisis in question does not imply that the probability of it occurring was zero. Markets assess risks in real time,” said the expert.

Damodaran also said that he hopes that investors find their own path back to serenity in the face of this market volatility. “Whatever you end up doing with your portfolio allows you to pass the sleep test, where you don't lie awake at night thinking about your portfolio (up or down),” said the NYU professor.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.