Published on: 2025-04-11
US stocks posted their biggest one-day gains in years on Wednesday, with the S&P 500 recording its largest rise since 2008 on Wednesday after Trump declared a temporary US pause on tariffs.
Treasury Secretary Scott Bessent later clarified that all countries except China would return to the 10% baseline tariff rate, down from previously announced higher rates, as negotiations take place.
The selloff in US assets since Trump's announcement of sweeping tariffs on 2 April has been broad and deep. Deutsche Bank said the world was entering uncharted territory in the global financial system.
BofA Global Research and Oppenheimer Asset Management on Monday became the latest Wall Street research firms to cut their year-end targets for the S&P 500 index to below the 6,000 mark.
Oppenheimer reduced its target to 5,950 from 7,100 target but maintained its "overweight" stance on US equities; BofA reduced to 5,600 from 6,666, making it one of the lowest on Wall Street.
Likewise, BMO Capital on Wednesday cut its year-end target by 9% to 6,100 from the prior 6,700 which is still well above the current level, citing the speed and severity of the recent selloff.
Last week, hedge funds underwent the largest selling on a net basis in almost 15 years on Thursday, while also turning the most bearish since 2011, according to Goldman Sachs.
recession fears
Goldman Sachs raised the odds of a US recession to 45% from 35%, the second time it has increased its forecast in a week, amid a growing chorus of such predictions by investment banks.
It has lowered its US growth outlook for 2025 to 1.3% from 1.5%, higher than Wells Fargo Investment Institute's 1% forecast.
At least seven top investment banks have raised their recession risk forecasts on fears that the tariffs will not only ignite US inflation but also spark retaliatory measures from other countries.
| US recession odds | |
| JP Morgan | 60% |
| S&P Global | 30-35% |
| HSBC | 40% |
Inflation swaps are betting that Trump's tariffs will have a hefty short-term impact on consumer prices that will recede in the next few years. March's readings could be the last time that price pressures eased.
Core inflation has remained stubbornly elevated due to sticky costs for shelter and services. Rising inflation expectations, coupled with rising fears of a self-inflicted recession, has kept the Fed in "wait-and-see" mode.
The central bank could be forced to choose between fighting high inflation and fighting high unemployment. Trump's ever-changing trade policies also help complicate decision-making.
Richmond Fed President Thomas Barkin said, consumers could sharply slow spending in the face of high prices after extra savings they had accumulated during several rounds of pandemic-era stimulus are drained.
Gloomy scenarios
The recent drop has been one of the steepest concentrated selloffs for Wall St, on par with the speed and intensity of drawdowns seen during the COVID-19 swoon in 2020 and the financial crisis slide in 2008.
The worst-case scenarios from some analysts saw the S&P 500 dropping as much as roughly 50% from its all-time high, which would be akin to the aftermath of the bursting of the dot-com bubble in 2000.
The forward PE ratio for the S&P 500 fell from 22.4 times expected 12-month earnings in February, to 18.4 as of last Friday, which is in line with its average of the past 10 years, according to LSEG Datastream.
The indicator went down to 15.3 as recently as 2022, when the Fed was raising interest rates to bring down spiking inflation. Furthermore, current valuations are yet to reflect damage tariffs do to corporate profits.
S&P 500 earnings are expected to rise 6.8% in Q1 and 11.2% for the full year, FactSet data shows. However, during recessions, earnings fall at an average annual rate of 24%, according to Ned Davis Research.
Tariffs could have ripple effects across multiple aspects of American companies' business models, from their supply chains to their labour costs to their price structures to customer behaviour, noted Morningstar.
The bigger news coming out of the forthcoming earning season will more likely be related to the outlook for the future. Some of US trading partners could strike deals later, making business forecast more unlikely.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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