Morgan Stanley turns bearish on U.S. stocks: Trump's tariff chain punches may smash the U.S. stock economic engine

According to the Zhitong Finance APP, as U.S. President Donald Trump launches a series of tariff offensives against countries around the world, JPMorgan's trading department is preparing for further declines in the U.S. stock market, as tariffs will weigh on domestic and international economic growth.

Andrew Tyler, head of global market intelligence at JPMorgan, stated that escalating trade tensions could lead to a significant downward revision of U.S. GDP expectations, and earnings revisions will also decline sharply. This will prompt Wall Street to reassess its year-end forecast for the S&P 500 index.

In a report to clients earlier on Tuesday, Tyler said, "In light of this, we will change our view to a tactical bearish stance."

So far, his caution has been justified: according to Bloomberg Industry Research data, first-quarter earnings growth expectations have been revised down from 11% at the start of the latest reporting period to 7.1%. Meanwhile, the latest GDPNow forecast from the Atlanta Federal Reserve, while not perfect, also indicates that the U.S. economy is contracting.

JPMorgan's long-standing bullish view in its trading department has reversed, as the U.S. stock market has lost more than $3 trillion in market value since Trump took office in November. Following Trump's election, optimism about market-friendly policies such as tax cuts and deregulation had driven the stock market to new highs, but the threat and implementation of tariffs have led to a market decline.

The U.S. president has fulfilled his threat to impose a 25% tariff on Canada and Mexico, while doubling tariffs on China to 20%. Meanwhile, a 25% tariff on steel and aluminum imports will take effect next week.

Given the rapid escalation of rhetoric and the lack of a clear negotiation pathway, Tyler's team predicts that such large-scale tariffs could push Canada and Mexico into recession while lowering expectations for U.S. economic growth.

As of Tuesday's close, the S&P 500 index fell 1.22%, having previously dropped 2% and approached the 200-day moving average. Monday marked the worst day for the stock market since 2025, and the index's decline has further widened since then.

Wall Street has resolutely avoided risk, with all sectors experiencing broad declines, from higher-risk small-cap stocks to U.S. tech giants that have been the pillars of the stock market surge over the past two years. The Russell 2000 index has fallen nearly 6% this year, while the sell-off of the so-called "seven giants" stocks has also led the index into a correction.

Over the past two years, Tyler has made correct judgments during most of the time the S&P 500 index has risen, and even diverged from JPMorgan's research strategists last year, predicting that the S&P 500 index would reach new highs. In December of last year, he warned that the increase in tariffs would cast a shadow over the economic outlook, and the U.S. stock market would face challenges in early 2025.

He told clients, "Given the uncertainty, positioning, and the possibility of negative feedback loops that may prompt people to adopt recession strategies, we believe a bearish position makes the most sense."