Liz Ann Sonders, Charles Schwab's chief investment strategist, sees a potential bear market if there’s not a significant rollback in President Donald Trump’s sweeping new tariffs. She also said that the announcement boosts recession risk, according to a note Wednesday from Charles Schwab with predictions from its market strategists.
U.S. stocks led a global selloff Thursday, a day after Trump announced massive tariffs on U.S. imports from countries around the world, including major trading partners.
The tariff announcement, coupled with deteriorating consumer sentiment and spending and other economic warning signals, increased the likelihood of a recession, Sonders said.
Schwab said recession probabilities from Wall Street analysts and economists have accelerated in recent weeks and may now exceed 50-50 after the new trade policy announcement.
“Sonders also expects many companies will opt to make adjustments to their 2025 earnings estimates, as the tariffs are likely to squeeze profit margins," said the note, written by Michael Townsend, Schwab managing director, legislative and regulatory affairs.
“The U.S. stock market is already in the midst of a correction," he wrote. "Historically, one of the key determinants of whether a correction morphed into a bear market was whether a recession was on the horizon.
“Alongside what she expects will be rising recession probabilities, a bear market is a distinct possibility, barring a significant ratcheting down of tariffs,” the note said.
Kathy Jones, Schwab's chief fixed income strategist, considers U.S. Treasurys an attractive perceived safe harbor, despite uncertainty as to how and when the Republican-controlled Congress will address the looming debt ceiling crisis and pass a budget bill with tax cuts and spending reductions, the note said.
The Federal Reserve will watch carefully and may cut rates sooner than expected if the economy weakens, Jones predicted.
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