JPMorgan's Revised Recession Odds: A Strategic Opportunity in U.S.-China Trade Truce Sectors

The drumbeat of recession risks has grown louder. JPMorgan now assigns a 60% probability of a U.S. recession by late 2025, driven largely by trade wars and protectionist policies. Yet within this storm, a narrow window of opportunity has emerged. The temporary truce in U.S.-China trade tensions—marked by partial tariff rollbacks—creates a three-month strategic window to position portfolios in trade-sensitive sectors poised to rebound. But the stakes are high: investors must act swiftly while hedging against lingering risks through rate-sensitive bonds and inflation-linked instruments.

The Trade Truce: A Fragile Catalyst for Sector Rebound

The partial rollback of tariffs, particularly in industries like semiconductors, automotive, and consumer goods, has injected a flicker of hope into markets. JPMorgan’s economists estimate that every 1% reduction in tariffs could boost U.S. GDP by 0.2% in 2025. This is no small matter in an economy teetering on the edge.

Industrials: Companies like Caterpillar (CAT) and Boeing (BA), which rely on global supply chains, are primed to benefit. Both stocks have underperformed in 2025, but shows a potential rebound if trade frictions ease further. Similarly, Boeing’s backlog of delayed orders could see accelerated fulfillment if tariffs on aerospace components are removed.

Tech: The semiconductor sector, a casualty of the tariff war, now has room to breathe. Texas Instruments (TXN) and Nvidia (NVDA), which operate in high-tariff sectors, could see margin improvements as input costs stabilize. underscores the link between tariffs and tech profitability.

Consumer Discretionary: Retailers like Amazon (AMZN) and Home Depot (HD) face headwinds from inflation, but reduced tariffs on imported goods could ease pricing pressures. **** reveals how supply chain bottlenecks are easing—a positive sign for margins.

The Fed’s Tightrope Walk: Rate Cuts on Delay

JPMorgan forecasts the Fed will cut rates starting in September 2025, but the delay is a double-edged sword. While patience is meant to combat lingering inflation—projected to fall to 3.9% by year-end—the pause keeps borrowing costs elevated for longer, squeezing corporate profits and consumer spending.

The Fed’s hesitation is understandable: geopolitical risks and trade uncertainty remain unresolved. Yet investors can exploit this hesitation by focusing on sectors that thrive in a “Goldilocks” scenario—moderate growth, no recession, and eventual rate cuts.

Hedging Against the Inevitable: Bonds and Inflation-Linked Instruments

The 60% recession probability is not a certainty. But it’s a reminder that tail risks—like a full-blown trade war or a Fed misstep—require caution.

• Rate-Sensitive Bonds: Treasury Inflation-Protected Securities (TIPS) and short-term investment-grade bonds (e.g., iShares 1-3 Year Treasury Bond ETF (SHY)) provide ballast. Their prices rise as rates fall, offsetting equity volatility.
• Inflation-Linked Equities: Utilities like NextEra Energy (NEE) and real estate investment trusts (REITs) such as Prologis (PLD) benefit from steady demand and inflation-indexed revenues.

The 3-Month Window: Act Now, but Stay Nimble

The three-month window is defined by two critical inflection points:
1. July 2025: The deadline for U.S.-China negotiators to finalize tariff exemptions. A breakdown here could reignite market fears.
2. September 2025: The Fed’s first rate cut. If delayed, it risks a “Fed put” disappointment, spurring a sell-off.

Investors should:
- Rotate into trade-sensitive sectors now, but set tight stop-losses.
- Hedge 20-30% of equity exposure with TIPS and short-term bonds.
- Avoid sectors with direct tariff exposure, like steel and textiles.

Conclusion: The Recession Odds Are High, but So Are the Rewards

At 60%, JPMorgan’s recession forecast is dire. Yet history shows that markets often bottom before recessions officially begin. The current trade truce offers a fleeting chance to position for a rebound in industrials, tech, and consumer discretionary—sectors that will lead the recovery if the U.S. avoids a full-blown downturn.

The path forward is clear: act decisively now, but stay ready to pivot if risks materialize. The clock is ticking.

This is the time to bet on sectors that will thrive in a fragile truce—and protect your portfolio if the truce crumbles.