JPMorgan Turns Bearish on U.S. Stocks as Escalating Tariffs Raise Recession Risks and Gloomy Outlook
1min read JPMorgan has become more bearish on U.S. stocks, driven by a less optimistic outlook on the economy as President Trump's recent tariffs escalate trade tensions and trigger a significant risk-off move in equities.
On Tuesday, a 25% tariff on all Canadian and Mexican imports, along with an additional 10% levy on Chinese goods, took effect. Meanwhile, a 25% tariff on steel and aluminum imports is set to take effect next week, with reciprocal tariffs expected in April.
Given this escalation, we are entering another period of uncertainty, as there does not appear to be a pathway to negotiation based on Trump's comments, Andrew Tyler, JPMorgan's head of global market intelligence, wrote in a note on Tuesday. With no clear resolution in sight, we expect tariffs of this magnitude to push both Canada and Mexico into recession. U.S. GDP growth expectations are likely to plummet, and earnings revisions will be materially lower, forcing a re-evaluation of year-end forecasts. With this in mind, we are shifting our stance to Tactically Bearish.
Tyler referenced the Federal Reserve's GDPNow tracker, which indicates that GDP is on pace to shrink by 2.8% in the first quarter.
The caution is further supported by data showing that first-quarter earnings growth estimates have already been revised down to 7.1% from 11% at the start of the latest reporting cycle.
Wall Street has firmly turned risk-off, with losses extending across various segments. The S&P 500 dropped 1.2% on Tuesday, nearly erasing the gains made since Trump's election victory on November 5. The Nasdaq 100 is approaching correction territory from its February high, while the Russell 2000 Index has shed nearly 6% year-to-date.
The new round of global trade conflicts threatens to slow U.S. economic growth—or even push the economy into a recession. As a result, traders are now betting that the Federal Reserve will cut rates three times this year, with each cut by 25 basis points. This marks the first time such expectations have emerged since mid-December.