Stocks are cratering after tariffs. Here's what's next for markets.

• Investors hate the trade war.
• Stocks crashed on Thursday in reaction to sweeping tariffs unveiled by the White House.
• Markets are in uncharted waters, and the path ahead is deeply uncertain.

Investors have made their opinion clear: They hate the trade war.

Stocks suffered their worst single-day loss in five years on Thursday. The S&P 500 dropped nearly 5%, the Dow lost 1,679 points, and the Nasdaq composite plunged 6%.

But with President Donald Trump's insistence that tariffs will be a windfall for American industry, it doesn't seem like the market will get a reprieve anytime soon.

So now what?

Stocks have enjoyed a secular bull market since about 2009, shortly after investors crawled out of the depths of the Great Recession. Now the question is: Is that era of gains over, or is this an opportunity for a reset of valuations that investors can get behind?

To understand the market's fear of tariffs, it's important to know that earnings growth has historically been the No. 1 driver of stock market gains.

Through that lens, the market's reaction makes sense. Goldman Sachs said earlier this year that for every 5-percentage-point increase in the tariff rate, investors could expect S&P 500 earnings to fall by 1% to 2%. After Trump's Rose Garden address, the US tariff rate stood at about 20%.

"Protectionism feels good, but it's expensive," Michael Farr, the CEO and founder of the investment advisory firm Farr, Miller & Washington, told Business Insider.

To Farr, the extreme tariff reaction is warranted, but it's not doomsday. Stocks have recovered from similar shocks, including the Great Recession and the COVID-19 pandemic.

"Part of this is an emotional response, which exacerbates volatility, but disciplined investors have to see this as buying opportunity," Farr said.

Still, the pain on Thursday is jarring, especially for investors accustomed to years of stellar gains. The S&P 500 notched a return of over 20% in 2023 and 2024. In 2025, it's down over 8%. It raises the question: Where do markets go from here?

In short, probably down — at least for now.

Earnings season is coming up and could provide a fresh catalyst for the market to rise. But importantly, first-quarter earnings data won't reflect the impacts of the new tariffs on companies' bottom lines. Those will be felt starting this quarter.

Bank of America analysts wrote on Thursday that assuming tariffs lead to higher costs for companies and lower demand from consumers, S&P 500 earnings per share could fall as little as 5%, or as much as 32% if countries retaliate.

"Investors looking for historical parallels are faced with scant observations from incomparable eras (e.g., 1930s Smoot Hawley ended badly)," the bank wrote. "Secondary impacts are even hazier: prolonged negotiations could stall activity spiraling into a recession. Calls to boycott US goods could ramp further."

The chances of a recession were already on the rise, and stagflation risk is front and center as tariffs threaten growth and higher inflation. Bond markets are signaling as much, with the 10-year Treasury yield falling 15 basis points to its lowest level since October.

A recession usually hurts earnings and business activity, while consumer spending is also likely to drop.

"The tariffs were higher than expected, and therefore markets hadn't fully priced in this magnitude. Wall Street is essentially repricing," Farr said. "The question is how much repricing is still to come."

The stock market is still not cheap, even after Thursday's plunge, and that's a reason for investors to brace for more losses as the worst-case scenarios get baked into valuations in the coming weeks.

In the event of a full-blown economic contraction, Bank of America said, the S&P 500 could drop to 5,000. That would represent a decline of about 8% from Thursday's levels.

"Markets have clearly taken note but are still far from pricing in the most negative scenarios, with valuations on many equities still elevated vs history," Adam Hetts, a Janus Henderson portfolio manager, said Thursday.

TL;DR for investors: Buckle up.