High Anxiety: Market Implications of Tariffs
Market analysts like to play the spread between greed and fear. The introduction of tariffs has created a sense of uncertainty, moving from a globalized approach to a more isolated stance.
The tariffs as announced could add 1% to 2% to inflation and detract possibly as much from growth. Stagflation tipping into recession if things escalate further. These are preliminary estimates, and it is important to monitor the 10-year government bond yields. A decline in these yields may indicate growing concerns about an impending recession.
Calls on negotiation
We’re watching in real time a “101-class” on negotiation. It begins with anchoring. As a seller, one might present an extreme offer to influence the buyer’s perception of a fair price, aiming to secure a higher payment.
However, if the initial offer is excessively high, it risks being dismissed. The buyer might respond with a significantly lower counteroffer, as both parties generally prefer to find a middle ground.
The tariffs have not been well-received. As they stand, they could potentially lead the global economy into recession. The unknown factors include the President’s tolerance for economic pain and the willingness of other countries to negotiate. These countries may perceive the U.S. as negotiating in bad faith and might choose to negotiate as unified trading blocs.
State of the market
Where does that leave markets? In a high anxiety moment. One likely to remain with us a while longer. Broadly speaking, we’re neutral in our equity allocations versus core bonds. We’ve held onto a small overweight in credit for the carry. No big bets, beta is well diversified and distributed.
Policymakers face the challenge of managing rising inflation alongside slowing growth. Central banks are likely to err on the side of caution, starting with the Fed. They may be forced to cut rates, however waiting until they see signs growth is weakening.
We’re keeping a close eye on consumer spending patterns as they are currently unstable and could deteriorate further if the situation continues. Expect to see increased caution from companies, a pullback in stock buybacks, capital spending and hiring.
We haven’t seen a moment like this in a while. Markets were expensive; investors repriced big-tech valuations. That’s now broadening across sectors and global markets thanks to tariffs. Tail risk is higher, markets aren’t inexpensive, the outlook’s uncertain. It is advisable to avoid taking excessive risks, as the future remains unpredictable.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “Market Implications of Tariffs,” by Richard Madigan, Chief Investment Officer, J.P. Morgan Private Bank, April 4, 2025
