UBS: Any rebound in US stocks is an opportunity to escape amid the aftershocks of tariffs
UBS pointed out that the risk of reciprocal tariff increases still exists, and economic activity will continue to be dragged down. It is expected that earnings downgrades will continue, and selling should be considered when the market rebounds. Although the Trump administration has taken measures to reduce the likelihood of the worst-case scenario, tariff policies will still have a serious impact on growth. The Federal Reserve's concerns about inflation have intensified, and core PCE is expected to exceed 4%. In the context of high inflation, the Federal Reserve may adopt a conservative stance, and economic uncertainty will persist
According to the Zhitong Finance APP, the Trump administration quickly shifted before the establishment of a bear market in U.S. stocks, avoiding a secondary feedback loop caused by funding chain issues, significantly reducing the likelihood of the worst-case scenario. However, even with the current tariff plan, it will still severely impact growth. UBS expects that earnings downgrades will continue and create resistance in the market, making it difficult to break through previous highs within the year. The bank recommends selling on rallies until more information is obtained.
The impact on growth remains significant and has not yet been fully reflected in prices
Although the market has fallen sharply, it has not fully digested the economic impact brought by the reciprocal and universal tariffs announced last week. As of April 9, market consensus still expects the S&P 500 index to grow earnings by 11.2% in 2025, with a 12.4% growth over the next 12 months. If we assume that the actual forward earnings forecast will quickly adjust to a contraction of 5%, the price-to-earnings ratio before today's rebound would be 23.7 times. These figures do not align with recession expectations and do not reflect the potential collapse of domestic demand that reciprocal and universal tariffs may trigger.
If we superficially view the policy adjustments: increasing tariffs on China and lowering reciprocal tariffs only means a slight decrease in the total tariff amount. However, it should be noted that tariffs on China may still be reduced through negotiations, and the tariff structure significantly impacts the market. Assuming a universal tariff of 10% and a tariff on China of 50%, GDP (especially U.S. domestic demand) is expected to be severely impacted, and earnings growth would need to be downgraded to low single digits or even zero growth.
Whether the Federal Reserve can immediately intervene to save weak growth remains uncertain. The minutes from the Federal Reserve meeting on March 18-19 show that it is deeply concerned about the persistence of inflation caused by tariffs. UBS's economic team predicts that even if tariffs are reduced, core PCE will still rise above 4% this year. In a high-inflation environment, the Federal Reserve is more likely to adopt a conservative stance rather than actively intervene. Additionally, despite a 90-day grace period, the risk of reciprocal tariffs being raised again has not been eliminated, and uncertainty will continue to weigh on economic activity
