UBS Warns: Sell U.S. Stock Rebound Amid Tariff Uncertainty

UBS, a prominent global financial institution, has issued a stark warning regarding the U.S. stock market. The firm suggests that any rebound in U.S. equities should be viewed as an opportunity to sell, given the lingering impact of tariffs and the potential for further economic disruption. The Trump administration's pivot away from policies that could exacerbate a bear market has mitigated some of the worst-case scenarios, but the current tariff regime continues to hinder growth.

UBS anticipates that earnings downgrades will persist, making it unlikely for the market to surpass previous highs within the year. The firm advises investors to take a cautious approach, selling on any upward movements in the market. The ongoing uncertainty surrounding tariffs and their potential escalation poses a significant risk to economic activity, which in turn will continue to weigh on corporate earnings and market performance.

The firm's analysis underscores the need for investors to remain vigilant and prepared for further market volatility. The tariff situation, coupled with the broader economic uncertainties, creates a challenging environment for equities. UBS's recommendation to sell on rebounds reflects a strategic approach to navigating these turbulent waters, aiming to protect investor capital from potential downside risks.

Despite the market's significant decline, the economic impact of the recently announced reciprocal and universal tariffs has not been fully absorbed. As of April 9, market consensus still predicts an 11.2% increase in S&P 500 earnings by 2025 and a 12.4% increase over the next 12 months. If the actual long-term earnings forecast is adjusted to a 5% contraction, the price-to-earnings ratio before the recent rebound would be 23.7 times. These figures do not align with expectations of an economic recession and do not account for the potential domestic demand collapse that reciprocal and universal tariffs could trigger.

If policy adjustments are viewed superficially, increasing tariffs on China and reducing reciprocal tariffs would only slightly decrease the overall tariff burden. However, it is important to note that China's tariffs could still be reduced through negotiations, and the tariff structure significantly impacts the market. Assuming a universal tariff of 10% and a China-specific tariff of 50%, GDP, particularly domestic demand in the U.S., would be severely affected, and earnings growth would need to be revised down to the low single digits or even zero.

The ability of the Federal Reserve to immediately address slowing growth remains uncertain. The minutes from the March 18-19 Federal Reserve meeting indicate deep concern over the sustained inflation caused by tariffs. UBS's economic team predicts that even if tariffs are reduced, the core PCE for this year will still rise above 4%. In a high-inflation environment, the Federal Reserve is more likely to adopt a conservative stance rather than proactive intervention. Additionally, despite a 90-day grace period, the risk of reciprocal tariffs being raised again has not been eliminated, and ongoing uncertainty will continue to dampen economic activity.