JPMorgan's Trade Guide for Trump's "Liberation Day": Navigating the Potential Shock

On Wednesday, global financial markets will face what President Trump has called "Liberation Day," a moment he claims will free the U.S. from an "unfair trade system." With reciprocal tariffs set to take effect, investors are bracing for heightened market volatility.

To help navigate the uncertainty, JPMorgan has released a trading guide, offering insights on potential market reactions and investment strategies.

JPMorgan, led by Andrew Tyler, maintains a tactical bearish stance on U.S. equities, citing policy uncertainty as the dominant market force. The bank believes neither the "Trump put" nor the "Fed put"—the expectation that the government or central bank will step in to support markets—is likely to be triggered in the near term. This means that even if U.S. stocks experience a sharp decline, intervention is unlikely.

That said, the bank expects the U.S. economy to remain resilient. While sentiment-driven indicators may weaken, hard economic data remains solid. A trade agreement with a G7 country—such as a U.S.-UK deal—could ease concerns about tariffs on the EU and Japan, but given Trump's recent comments, this scenario appears unlikely.

JPMorgan identifies potential safe-haven markets, with Australia, Japan, and the UK offering relative stability. China could also present opportunities if the government introduces fiscal stimulus.

In U.S. equities, JPMorgan suggests long positions in energy and utilities (excluding AI-related stocks), while recommending shorts in low-yield consumer discretionary and high-beta tech stocks. Some financial stocks, particularly global systemically important banks (G-SIBs), insurers, and payment processors, may offer defensive advantages.

In fixed income and commodities, credit markets could outperform equities. JPMorgan favors long positions in gold, oil, and natural gas, as these assets typically benefit from trade disruptions.

Although some expect Trump's tariffs to be temporary, many believe they are part of a broader effort to reshape global manufacturing. Tyler warns that Trump may tolerate a deeper market correction than expected. If there is a "Trump put," it likely won't be triggered unless the S&P 500 falls below 5000.

The Fed's response will depend on labor market conditions. With unemployment at 4.2% and inflation at 2.8%, policymakers are unlikely to ease rates unless joblessness rises above 5%. If tariffs push inflation higher, the Fed may have limited room to act before Q3.

JPMorgan anticipates different tariff rates for various U.S. trading partners:

Canada & Mexico: The previously delayed 25% tariffs are likely to take effect, but additional duties may not be imposed.

European Union: While Trump has mentioned a 25% tariff, reports suggest the EU may negotiate concessions, resulting in a lower rate of 10%-15%.

Japan: Given U.S. efforts to attract Japanese investment, tariffs may be set at around 10%.

Beyond these country-specific tariffs, JPMorgan warns that additional trade measures could follow, including:

Shipping Fees: If Trump imposes tariffs on shipping vessels, freight costs could surge to pandemic-era levels, exacerbating inflation.

Value-Added Tax (VAT) Adjustments: The U.S. may factor in VAT rates when setting tariffs, using them as a bargaining tool in future negotiations.

Broad-Based Tariff Package: Instead of country-specific measures, the administration could introduce a uniform tariff policy.

The Road Ahead

Treasury Secretary Bessent has suggested the tariff dispute could extend through June, with multiple stages of escalation—announcement, retaliation, and resolution. April 2 will not be a one-time event, as markets have yet to fully price in the tariffs.

JPMorgan outlines two possible outcomes:

Best-Case Scenario: A low (≤10%) uniform tariff with no VAT adjustments. Trump signals willingness to negotiate sectoral tariffs, such as 25% on steel, aluminum, autos, and semiconductors. No additional shipping tariffs.

Worst-Case Scenario: Higher-than-expected tariffs, VAT-based adjustments, and new levies on shipping vessels. Any outright bans on cargo shipments could further disrupt markets.

While some believe the U.S. stock market will ultimately recover, JPMorgan remains cautious. Tech giants may offer some downside protection, but semiconductor uncertainty—particularly for companies like NVIDIA—could weaken their defensive role.

The U.S. dollar has recently weakened due to shifting growth expectations, but in a downturn, it could regain its safe-haven status.

JPMorgan argues that tariffs have been widely discussed but not fully priced into the market. Additionally, investors may be overestimating the likelihood of intervention from the Fed or Trump administration in Q2.

With details of the tariff plan still uncertain, April 2 will be a key turning point for global markets—but it won't be the final word in this trade war.