JP Morgan turns bearish on US stocks: Trump's tariff 1-2 punch could crush US stock economic engine

As United States President Donald Trump launches a series of tariff offensives against countries worldwide, Morgan Stanley's trading department is preparing for further declines in the US stock market, as tariffs will drag down domestic and international economic growth. Andrew Tyler, head of global market intelligence at Morgan Stanley, stated that escalating trade tensions could lead to a significant drop in the United States Gross Domestic Product (GDP) expectations, as well as a substantial decrease in profit revisions. This will prompt Wall Street to reconsider year-end forecasts for the S&P 500 index. In a report to clients earlier on Tuesday, Tyler said, "Given this, we will change our view to a tactical bearish one." So far, his caution has been justified: according to Bloomberg industry research data, first-quarter earnings growth expectations have been lowered from 11% at the beginning of the latest reporting period to 7.1%. Meanwhile, while not perfect, the latest GDPNow forecast from the Atlanta Federal Reserve indicates that the US economy is contracting. The long-standing bullish outlook of Morgan Stanley's trading department has reversed course, as since Trump took office in November, the US stock market has lost over $3 trillion in market value. After Trump's victory, optimism about market-friendly policies such as tax cuts and deregulation had driven the stock market to record highs, but threats and implementation of tariffs have caused stock market declines. President Trump has followed through on threats to impose 25% tariffs on Canada and Mexico, while doubling tariffs on China to 20%. Meanwhile, tariffs of 25% on steel and aluminum imports will take effect next week. Given the rapid escalation in rhetoric and lack of clear negotiation paths, Tyler's team predicts that such massive tariffs could push Canada and Mexico into recession while lowering expectations for US economic growth. At the close on Tuesday, the S&P 500 index fell 1.22%, having previously dropped by 2% and approaching the 200-day moving average. Monday saw the stock market's worst day since 2025, with further declines in the index. Wall Street has actively avoided risks, with sectors ranging from high-risk small-cap stocks to US tech giants, which have been pillars of the market's surge over the past two years, all experiencing widespread declines. The Russell 2000 index has fallen nearly 6% this year, while selling off the so-called "Fab 7" stocks has also led to a pullback in the index. Over the past two years, Tyler has made correct calls during most of the time the S&P 500 was rising, even going against Morgan Stanley's research strategy analysts last year by predicting that the S&P 500 would hit record highs. In December of last year, he warned that as tariff increases darken economic prospects, the US stock market will face challenges in early 2025. He told clients, "Given the uncertainty, positioning, and the potential negative feedback loop, which could lead to a recessionary strategy being implemented, we believe a bearish stance makes the most sense."