On the eve of the tariff storm, Wall Street is unanimously bearish: the sell-off in U.S. stocks will escalate, with volatility comparable to the U.S. elections!

The storm of tariffs from Trump is approaching, and Wall Street is collectively bearish on U.S. stocks, with hedge funds preemptively selling off to cope with volatility.

According to CCTV News, on March 31 local time, U.S. President Trump stated that he might announce details of reciprocal tariffs on April 2.

In the weeks following Trump's victory, U.S. stocks soared, with investors and sell-side analysts welcoming his plans for tax cuts and deregulation, while essentially viewing the tariff threats as a negotiation tactic. However, sentiment has now changed.

Bearish sentiment among Wall Street traders is rising, with a consensus warning that the sell-off in U.S. stocks may further intensify, as noted in a previous report from Goldman Sachs' trading department, which pointed out that "the bearish calls are growing louder across the entire trading floor and client base," and indicated that the expected volatility levels this week are comparable to those during the U.S. elections in November last year.

"Smart money" has already begun to act, as hedge funds have reduced high-risk bets and sought safe havens ahead of Trump's announcement of tariff measures on April 2.

Market Anxiety Intensifies, Wall Street is Bearish

Institutions such as Goldman Sachs and Bank of America expect that the highly anticipated trade measures will increase volatility in the stock market and deepen the decline of U.S. stock market benchmark indices. The S&P 500 index has just experienced its worst quarter since 2022.

Several trading departments have warned that the S&P 500 index, currently around 5600 points, still has room to fall. John Tully from Bank of America stated that the U.S. benchmark index could drop below 5500 points; while a recent report from UBS indicated that if the White House implements a 20% tariff, the index could fall to 5400 points.

Michael Romano, head of hedge fund equity derivatives sales at UBS Securities, wrote in a letter to clients:

There are a variety of outcomes, and there is the potential for extreme volatility. What is particularly concerning is the high probability of extreme downward movements.

J.P. Morgan's trading department remains tactically bearish on the stock market, citing policy uncertainty and the potential impact of tariffs on the economy. Alexander Altmann, global equity tactical strategist at Barclays, stated,

My biggest concern is that Trump's statements will leave room for interpretation, leading to ongoing turbulence in trade policy. Uncertainty is the killer of everything in the market; it stifles investment decisions, corporate spending, and the confidence of businesses and consumers.

Even the three most optimistic bulls on Wall Street have now admitted that they were overly optimistic in their forecasts for the index this year, as strategists from Goldman Sachs, Société Générale, and Yardeni Research have lowered their year-end targets for the benchmark index at the start of the second quarter, but they still believe that U.S. stocks will rise in the remaining three quarters of 2025

Hedge Funds Actively Adjust Positions in Response to "Tariff Day"

Savvy hedge fund managers are not sitting idle; they have begun actively adjusting their portfolios in preparation for Trump's "Tariff Day." Smart money in these markets has started to reduce holdings in high-risk assets, increase short positions, and look for industries that may benefit under the new policy environment.

Goldman's brokerage division provided observations on hedge fund positions:

1. Retreat: Hedge funds have reduced net exposure across all regions, particularly in Europe, followed by emerging markets and Asia.
2. Avoiding Emerging Markets: Hedge funds have sold off major emerging markets. So far this year, they have maintained a long position over short in Latin America and Asian emerging market stocks. Goldman data shows that stocks in Asia were heavily sold off in March. Short positions anticipate a decline in asset prices, while long positions hope for an increase.
3. Exiting Cyclical Industries: Hedge funds have cut positions in stocks closely tied to economic cycles. Companies such as auto parts manufacturers, some jewelry brands, and home goods stores typically struggle when consumer discretionary spending decreases.
4. Major Shift: Goldman data shows that hedge funds have begun selling European auto stocks, having previously been buying these stocks until early March. Since Trump announced plans to impose a 25% tariff on imported cars and light trucks starting April 3, and tariffs on auto parts beginning May 3, speculators have flooded into short positions in the industry.
5. Metal Frenzy: Goldman stated that hedge funds have recently made significant purchases of stocks sensitive to metal prices. The report noted that these stocks held by hedge funds are at a multi-year high