Worry is lingering on Wall Street, even after President Donald Trump paused some of his wide-ranging tariffs.
The concern, which is underpinned by investors trying to contend with market volatility stoked by an unpredictable president, leaves little conviction in any future market rallies, according to UBS.
“Trump’s administration isn’t as impervious to market pain as it may have appeared for a while. Its pain threshold has just come into view,” UBS strategist Bhanu Baweja said in a Thursday note. “Bottom line: [the] left tail is much thinner, but we are selling rallies until we learn.”
UBS’ shaky market conviction is echoed by others who say Trump’s whipsaw actions leave a persistent feeling of uncertainty lingering over Wall Street. Morgan Stanley chief U.S. economist Michael Gapen said the economy is still at risk of entering a recession due to Trump’s trade policy, while Raymond James reiterated its view that volatility is likely to persist. Their views suggest that enough damage has been done to justify serious questions about the strength of the market and economy.
Indeed, after Wednesday’s euphoria, stocks are pulling back sharply so far on Thursday. At midday, the Dow Jones Industrial Average was down about 1,600 points. The S&P 500 and the Nasdaq are off around 4.9% and 5.7%, respectively. The declines suggest sentiment has weakened again.
A day earlier, Trump issued a 90-day reprieve for his “reciprocal” tariff plan for most countries. The move spurred hope that the president could soon begin making deals with global trading partners. Stocks soared immediately after Trump’s comments, with the S&P 500 posting its largest gain since 2008. Trump’s pronouncement also followed a steep sell-off in U.S. Treasurys on Wednesday that both confounded investors and worried Wall Street that foreign holders of domestic debt could be selling their bond holdings.
Since then, investors have digested the news and have come to realize how high the tariffs remain. The 125% rate on China, actually translates to an effective rate of 145%, including earlier levies, the White House told CNBC.
The S&P 500 has seen heightened volatility over the past week.
“The increase in China tariffs but delay in others leaves the effective tariff rate at 23%, at historical highs,” Gapen said. “Delays help, but do not reduce uncertainty.”
Gapen said his baseline forecast for the U.S. economy includes inflation remaining sticky, slowing growth as well as a powerless Federal Reserve that can’t cut interest rates because of the persistent price pressures as a result of the tariffs.
Elsewhere, Piper Sandler analyst Andy Laperriere noted that some of the optimism on Wednesday was overdone, and suggested remaining cautious.
“Our sense is clients are way too optimistic about reaching deals with our trading partners,” Laperriere said. “We’re likely to get whipsawed by good news and bad news and uncertainty is likely to stay extremely elevated. Some tariffs will go up and some will go down. But as of this morning, we are at Smoot-Hawley levels. This is far from over.”
Raymond James Washington policy analyst Ed Mills said he expects Trump to be stearn with the 10% baseline tariff rate in order to boost government revenue to offset desired tax cuts.
“The continued existence of a 10% universal tariff, the 125% China tariff, pending additional action on sector-specific tariffs, and the elevated uncertainty generated by the administration’s reversal will ultimately compound existing uncertainty for corporates, especially in the context of Trump’s push to re-shore production and manufacturing in the U.S.,” Mills said.
