This is Terms of Service, I’m Clare Duffy. Today, we’re talking about one of the biggest stories in the business world right now. And while it’s not exactly a tech story, the decline in the stock prices of big tech giants has a lot to do with it. And that is the upheaval in financial markets in recent weeks and the uncertainty that’s created about the state of the economy, and how all of us can and should be navigating this precarious moment. To help me make sense of all of this, I talked to Jeanne Sahadi. Jeanne is a senior writer for CNN Business. She has covered everything from executive leadership to personal finance, and she recently wrote about what to do if the stock market’s big drop is getting to you, which if you, like me, have recently looked at your 401(k), it probably is. Jeanne, thanks for being here.

Oh, thank you for having me. I appreciate it.

Have you managed to avoid panic checking your 401(k) in the past few weeks?

No. And I’m usually pretty good about it. I think if you have a pulse, you’re a little bit worried because just everything feels disjointed. You know, there are always stock market declines, big ones sometimes over the course of an investor’s life, but this is just so abrupt.

So, the past few weeks have been pretty wild. The stock market has been all over the place but trending downward. We’ve seen the president make a number of policy changes, reversing some policy changes. Can you just give us a bird’s eye view of what is going on in this moment and why there is so much uncertainty?

Yes. It’s a long list, but at the top is that I think people, based on President Trump’s actions and words, especially how he’s treated his allies, I think everybody is back on their heels. They don’t know what to expect. They don’t know what to think of the United States. We’ve been a very stable economy, very stable political system. We’ve been an attractive place to do business and an attractive place to invest. That may all remain so, but right now it’s a question mark. Primarily on the economic side, let’s just stick with that, on the economics side, it really is his tariffs regime. He came out, he announced it. It was wider spread and more punitive than anyone expected including, I might add, Federal Reserve chairman Jay Powell who’s been working really hard to keep inflation down. Most economists have looked at this tariff policy and thought, okay what’s going to happen? We’re going to see an economic slowdown and prices are going to go up.

Why is that? It’s because the companies that are importing goods that are now going to be tariffed are going to have to pay more and then potentially pass that cost along to consumers?

‘Yeah, I mean everyone talks about it like a tax, right? So it’s a tax on everyone. It’s also a tax and low-income people because they buy things from major trading partners like Canada, Mexico and China. Canada and Mexico are sort of nearest allies and friends, and they are getting hit, too. China, on the other hand, is getting hit the hardest. And they tend to export the cheapest products. So people have really gotten attached to them.

Yeah, it’s interesting, like we’ve seen this TikTok trend in the last few days of probably pretend people saying that they are working at factories in China, and you should buy their goods for cheaper. And it’s all sort of silly, but I think it really speaks to just how reliant we are on countries like China for so many of our goods. Beyond tariffs and the stock market, are there other data points that indicate the economy might be in trouble?

So what we have now is a split. We have hard data, and we have soft data. The hard data is pretty good, but it’s also lagging indicators, right? So it’s in the past, in March, in the fourth quarter. So GDP, employment, unemployment, just a host of factors are pretty solid because we had a great economy in 2024, great GDP in 2024. The soft data, like consumer sentiment, is bad. It fell quite a lot. So that’s, I think, what people call a, talk about a “vibecession.” That’s what they’re talking about. People feel not great. I look at my 401(k), I don’t feel great. So you need to keep some perspective, but I think the problem for consumers, investors and businesses is they don’t know what’s coming next. The tariffs, while very punitive, are also very eratically announced in the sense that he came out, said what he was going to do but then since has stepped back the effective date. We’ve gotten conflicting messages from the administration as to whether some tariffs will be permanent or temporary. So people don’t know the rules of the road. So I think that the markets, both stock and bond, will be on tenterhooks a bit until we get more clarity.

On your point about the vibecession, is there a risk of sort of a downward spiral here where consumers are worried about the state of the economy, so they start spending less, but then when consumers spend less, that’s not good for the economy?

The economy really runs on consumer spending primarily, and the numbers have been good. In fact, the latest reading was that it was quite good in March. But people think part of that is because people were advanced purchasing, worried about price increases if and when the tariffs take effect. So, yes, I mean, I’ve always maintained my entire time here, and I’ve been here 2,000 years, hope and stability are critical to any economy and to any civil population.

We’ve started to hear the word recession batted around again, which of course is scary. Do we have any idea at this point how likely it is that the economy will actually tip into recession?

We have an idea of all the people saying there’s gonna be a recession. And when we technically know we’re in a recession, we’ll be after it’s over because there’s this tiny group at the National Bureau of Economic Research, the Business Cycle Dating Committee, I think it’s what they’re called, and it has nothing to do with, you know, getting a date. And they basically look at peaks and troughs, and they use a bunch of hard data, hard economic data, but they focus a lot on employment and personal income to assess, but they’re gonna, this has happened before, when they’ve called the recession, people are like, it’s not over, I still feel it. So you’re gonna get that. So they have a technical end to a recession and a technical beginning, but how people feel is usually a longer span.

Interesting. Yeah, that was a question for me, like, if the economy does enter a recession, will we know that in the moment? Will it be obvious? But it sounds like technically maybe not.

‘Technically it may not be, but what people would see, you know, consumer spending would go down. You’ll know more people who are getting laid off. It’s sort of a broad contraction in the economy, right? You might hear companies give warnings for their next earnings, like, oh, demand’s been hit, production is down. So you’re going to hear a lot of economic points that are not going to make you feel great. And if you feel your job’s at risk, you’re really not going to feel great. And then the special thing with recession here in this instance is that what I’ve been calling recession plus, people are worried about so-called stagflation, which is like all the bad stuff about recession plus higher prices.

Stagflation is a situation where the economy slows down and people have less spending power, and yet, prices remain high. In this case, that could be exacerbated by ongoing tariffs.

It’s basically, in a recession, prices, if they’re going to change at all, are more likely to fall because there’s lack of demand, and people want to juice demand so they’re gonna try to make it attractive to buy something. But with tariffs, they won’t be able to do that, in all likelihood, if they’re passing the costs along to consumers. So it’s what worrries the Fed the most, because what it does is they have a dual mandate, right? And they typically lower rates when economic growth has slowed because they want to gin the economy up. And they raise rates when inflation is high to slow the economy down. If you have a slow economy and high inflation, you can’t do both. You have to pick one. And so Federal Reserve Chairman Jay Powell has come out very publicly and said this. Like, this is uncharted territory for us in recent decades. The message was basically, the Fed can’t come to the market’s rescue entirely. They’re going to have to pick: lower rates if the economy is slowing down, or, if inflation really does take off, raise rates. But right now the thinking is they would be more inclined to lower rates.

Yeah, that is scary to think, like if people have less spending power, if people are losing their jobs and yet prices continue to go up, that sounds like a scary place to be.

‘In the days after Jeanne and I spoke, markets were roiled even more as Trump antagonized and threatened to oust Fed Chair Jerome Powell, who is supposed to be independent and who is in charge of helping to keep all of this in check. After market chaos and warnings from some of his top advisors, Trump then made a U-turn and said he has no intention of firing Powell. But a lot could happen between the time that we’re recording this and the time that you’ll hear it. With all of this uncertainty, what can we do to secure our finances or at least have some peace of mind? That’s after the break. Since we’ve talked a little bit about 401(k)s, how should people be thinking about their investment strategy in uncertain times like this?

Yeah. So I’ve done this work a lot over the years, and I personally feel insecure saying anything too definitive because the variables here are a lot different than they’ve been in the past when the market’s gone down. But, generally speaking, keep some perspective, right? If you’re going to invest over decades, you’re gonna see multiple big drops in the market. In many respects, it’s a buying opportunity for you, especially if you have a long time horizon. But the financial experts I’ve talked to have said, you know what, If you’re going to continue buying into the market outside of your, well, even in your 401(k), you’re doing this already, but they want you to put dollar cost average, which means you put a small amount in the market at regular intervals. So if you have $10,000 to invest, maybe you do $2,000 a month for five months because the market could still go down, but it’s just a much better price you’re buying the stock at, so it’s worth it in that respect. You want to be really diversified in your portfolio, meaning between stocks and bonds, between sectors of the economy. You can’t predict what’s going to do well and what’s not going to do well. With any luck, a diversified portfolio where you have some stocks, some bonds, they will perform differently. When stocks go down, bonds will go up. And that reduces sort of the risk and volatility of your portfolio, generally speaking.

Got it. And when you talk about diversifying your portfolio also, is that, you know, even within stocks, you’re picking maybe some international investments, some domestic investments, different types of companies?

‘So, if we’re talking about 401(k)s, you have a limited universe to invest in. A lot of people are in target day funds, which do that for you, right? They take your age and your likely year of retirement, and they adjust the portfolio, you know, more stocks when you’re young, more bonds when you are older. But usually 60-40 is, even for people near retirement, they can stick at 60-40: 60% stocks, 40% bonds. In terms of like domestic international, international stocks haven’t been doing well for so many years, except this year. They have outperformed the US and then some. Not that they haven’t been hit by the recent downturns, but Americans have rarely had enough diversification to international stocks. So you want to look at your 401(k) and see that you’re getting domestic, international, big cap, mid cap, small cap in stocks, and then bonds you want have high quality bonds, high quality treasuries, high quality corporate bonds, high quality muni bonds, if they’re on offer. And you can get it through a fund. So that takes the burden off of you picking individual investments, yeah.

You touched on this, but this advice is going to differ slightly if you’re planning to retire in the next five years or if you are not planning to retire for decades, right?

‘In general, even if you’re going to retire soon, you have a long horizon in that hopefully you’ll live 20-plus years in retirement. So you do want to have stock investments, and you want to have bond investments. You also, though, want to have cash on the side to cover one or two years of living expenses. Because people who retire into a down market, if they’re forced to sell from their portfolio, it’s like a double negative. You lock in your losses, and now you have less to draw from going forward and less that you’ll allow to recover. So the idea of having cash on the side in things like CDs and short-term bonds, money market funds, is that you can get an inflation, if not inflation beating, keeping up with inflation, and you can pull on that money for your living expenses and retirement if the market’s down so you don’t have to touch your portfolio.

And what about broader personal finance strategies? Like something I’m personally curious about is, like, should we be reconsidering upcoming vacations or big ticket purchases because there’s so much uncertainty right now?

There’s so much stress I would take the vacation. I mean, if you — I really need one now, don’t you?

So, I think with the big purchases like cars or appliances, what I’ve been hearing from people is if it doesn’t put you out financially, if you’re going to do it anyway, like your car’s on its last legs, your washer dryer’s on their last legs. If you’re gonna do it later this year or next year, maybe up the purchase a bit before these tariffs really take effect on prices, which hasn’t happened yet. That’s the most compelling case to do it. But I think in general, though, nobody can predict what’s gonna happen tomorrow, let alone two years from now. So, I think you just need to be prudent in your spending and decide what you really need versus what you want and make an assessment. But I would take the vacation again.

Thank you. Thanks for the permission.

I don’t wanna see you here tomorrow.

What can people do if they’re worried about potential layoffs, whether it’s just because of the economic potential downturn or because your industry is affected by these tariffs?

‘Back to cash: Everyone always talks about emergency funds. They’re kind of hard to get together for most people. You know, if you’re on your own and you’re single, three to six months of living expenses is a good cushion to have on top of any severance or unemployment benefits you might get. If you’re the sole breadwinner or if you have high expenses, you know, you might want to have nine to 12 months set aside, if possible. You probably can’t do that. Most people can’t that. So what you want to do then is look at your backstops, right? Yes, you can get unemployment benefits to subsidize you. If you own your home, do you have a home equity line of credit? You can tap that in an emergency, right? So you want to think in those terms, and then also look at your skill set. Are there things you can do if you’re laid off before you get your full-time job that you actually want that can earn you money? Like I talked to a financial planner, she was a teacher, so she tutors on the side if she gets laid off, things like that. You want to plan for the worst-case scenario, basically. And having a plan will make you feel better, right? You have a strategy. And that now won’t happen. It’s like making a will you won’t die.

So much of this uncertainty is being caused by tariffs and the potential that costs could go up. Should people be stocking up on things that they worry might be affected by tariffs?

You know, people buy a lot of things in this country. So what does stocking up mean? Are you going to buy more toilet paper? That seems silly. I do think with the big purchases that can really — people talk about cars especially. You want to buy sooner because inventory may run out, right? So I’m not a car expert. But I think August, September is when they start bringing in the new year’s worth, and the old ones go out. Used car prices will go up, too, if tariffs hit hard. So it would be across the board. So you need to think smartly about that. I think for the everyday stuff, if you’re particularly addicted to a certain cracker, I would stock up on that. This is like vacation, but it’s like stress reduction at home.

‘How can people avoid making panic-driven financial decisions in this moment?

Again, it’s a question of perspective. If you’re in the middle of your career, you have a long time to invest, these kinds of things happen. No one can guarantee you that there will be recovery, but there always have been for the last century. So, I’ve asked financial planners this a lot in the last few weeks. I said, excuse me, how different is this? Is this time different? And not one person was worried that we won’t come back at some point. Nobody can say exactly when. And the depth of the drop in stocks isn’t nearly — we could see if there’s a recession or, you know, things like that. So we’re not there yet. So keep that in mind. I would also, I think having a backup plan for yourself will make you feel better. And if you really are uncomfortable with how things are going with your portfolio, reassess your allocation. If you add more bonds, chances are you’re gonna reduce your losses. It’s still not gonna feel great. Losses never feel great, but I’d rather lose five percent than ten percent.

‘Yeah, it strikes me as you’re talking about this, too, even for myself, like maybe it’s a moment to say maybe I can put a smaller percentage of my monthly earnings into the market and instead save that money in cash or in a high-yield savings account to kind of work on that backup plan a little bit.

‘Yeah, I mean if you’re maxing out your 401(k), and you want to pull back a little bit to bolster your emergency fund, sure, and you’re going to get less of a tax break when you do that. But if that makes you feel better, I really do think like the stress-free diet is, even though it’s not great for nutrition and weight gain, it does matter. Your mood matters, right? So don’t go all to cash. You will not earn what you need to earn in cash. It may not even keep up with inflation. And you won’t be able to time the market and get back when things are good. Nobody knows how to time in the market, and you want to be there when there’s a recovery. So you want leave your investments as long as you possibly can.

Is there anything I didn’t ask you about this that you think is important to mention?

I think what’s most upsetting to people is we never have control. You never have to control in life. That’s not new. But because in 2024, no one was talking about a recession, and now all of a sudden we are, and we see the tariff policy changing weekly, if not daily sometimes. And we see our allies being insulted. It’s just a different environment, and people have to adjust. And it’s just, it takes a minute, I think.

It does feel like there’s some, almost like, shock for people right now. Like, people maybe really were expecting, at least the folks who voted for Trump, that he was going to bring prices down of groceries and things like that really quickly.

‘But he also said he was gonna do tariffs. I mean, give the man credit, he does broadcast what he will be doing when he gets here. The promises he makes that are vaguer, they’re harder to follow through on. And right now, you know, no economist is looking at this plan and saying, I understand what he’s doing. Even though the White House is saying, you now, short-term pain for long-term gain. We’re pretty much a short- term society. So that’s not a really compelling argument to most people. But even if that’s true, no one can see it right now. And what happens when you do something suddenly and broadly? You can’t control for variables that are not in your theory, not on the paper, right? People are going to start to behave differently if they feel like they’re financially stretched. Companies will behave differently. So those are the unknowns. And that’s not something the White House can control for.

Yeah. Well, Jeanne, thank you so much for doing this.

Thank you. I appreciate it.

I am feeling at least a little better after that conversation with Jeanne. I hope you are, too. To recap, if you wanna revisit your finances in the face of all this economic uncertainty, here are some things to keep in mind. First, when it comes to investing, you can’t predict the future. But remember that big drops can and do happen. This isn’t the first time or the last. So it’s a good idea to keep a diversified portfolio with both stocks and bonds that’ll help guard against volatility. For an easy approach, consider a target date fund that will diversify your portfolio for you. If you have extra cash to invest in the market, consider investing smaller amounts over the course of several months rather than all at once. Next, if possible, try to set aside a cash emergency fund. Three to six months of living expenses is a good ballpark, or closer to 12 months if you have higher expenses. Finally, if you’ve been thinking about making a bigger purchase, like a car, it’s worth considering doing it sooner rather than later this year, before tariffs really start to affect consumer prices. Thanks for listening to this episode of Terms of Service. I’m Clare Duffy, talk to you next week. Terms of Service is a CNN Audio and Goat Rodeo production. This show is produced and hosted by me, Clare Duffy. At Goat Rodeo, the lead producer is Rebecca Seidel, and the executive producers are Megan Nadolski and Ian Enright. At CNN, Matt Martinez is our Senior Producer, and Dan Dzula is our Technical Director. Haley Thomas is Senior Producer of Development. Steve Lickteig is the Executive Producer of CNN Audio. With support from Kyra Dahring, Emily Williams, Tayler Phillips, David Rind, Dan Bloom, Robert Mathers, Jamus Andrest, Nicole Pesaru, Alex Manasseri, Mark Duffy, Leni Steinhardt, Jon Dianora, and Lisa Namerow. Special thanks to Katie Hinman, David Goldman, and Wendy Brundige. Thank you for listening.