MW Trump's tariff pause takes away bad outcomes - but this UBS strategist says investors should still sell rallies.

By Barbara Kollmeyer

Bhanu Baweja says we don't know enough about what tariffs will do to growth

Strategists and advisers have been at pains to convey the message that financial markets aren't out of the woods after President Trump's rally-inducing tariff pause on Wednesday.

Thursday's stock futures action suggests the same, with futures for the Dow industrials pointed to a 400-point drop ahead. Our call of the day from UBS's top strategist Bhanu Baweja, is advising investors to sell any rallies until more is known about what tariffs will do to growth.

"The administration rapidly changed its mind before a bear market was established and before any funding problems could emerge and create secondary feedback loops," Baweja wrote in a note to clients on Thursday.

Trump's tariff pause caused a hefty thinning of so-called left tail risk, he said, referring to the result of unpredictable and extreme events that can lead to market crashes and significant losses for investors.

"But we believe even these reduced tariffs will imply a serious hit to growth. We expect negative earnings, revisions to continue and create a headwind for the market. We don't expect the highs to be tested and would recommend selling rallies until we learn more," he said.

The strategist is arguing that the stock selloff prior to Thursday's rally wasn't properly "pricing in the economic hit" from last week's tariff announcements.

As of Thursday, he said consensus was calling for S&P 500 earnings growth of 11.2% in 2025 and 12.4% for the next 12 months.

"Neither is consistent with a recession (and a much larger collapse in domestic demand) that we believe the reciprocal +universal tariffs would have caused," said Baweja. "The growth hit is still substantial and it's not priced in."

He said assuming just 10% universal tariffs and 50% on China, domestic demand hits could be big enough to bring earnings growth to low single digits or flat. That echoes what he was saying a couple of days ago, that levies threatened "zero percent earnings growth, potentially even negative earnings growth in the U.S."

Investors will get the first clues on tariff pain when big Wall Street firms such as BlackRock $(BLK)$ and JPMorgan $(JPM)$ kick off earnings season on Friday.

The strategist is also not sure the Fed could ride to the rescue of growth fallout, with minutes of the March meeting suggesting the central bank was more worried about sticky inflation caused by tariffs.

"After its messaging problems in 2022, admits this high inflation backdrop, we think the Fed is likely to err on the side of being reactive rather than proactive," Baweja said. Even with the 90-day reprieve on tariffs, there's no guarantee they won't rise again.

"We expect uncertainty to negatively impact economic activity."

Read: The stock market may be soaring, but here's where the sellers are likely waiting

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are in the red as CPI data looms, while Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y hold steady. Gold (GC00) continues to climb above $3,100. The Nikkei 225 JP:NIK soared 8% and Europe stocks XX:SXXP are also catching up to Wall Street's rally.

   Key asset performance                                                Last       5d       1m      YTD      1y 
   S&P 500                                                              5456.9     -3.77%   -2.54%  -7.22%   5.74% 
   Nasdaq Composite                                                     17,124.97  -2.70%   -2.97%  -11.32%  5.90% 
   10-year Treasury                                                     4.294      26.10    2.10    -28.20   -30.10 
   Gold                                                                 3131.9     -1.83%   6.40%   18.66%   33.14% 
   Oil                                                                  61.8       -12.61%  -8.70%  -14.01%  -28.35% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Consumer prices for March are due at 8:30 a.m. and economists are expecting a slight moderation, with annual headline prices expected to come down to 2.6% from 2.8%. Weekly jobless claims are coming at the same time. The monthly federal budget is due later in the day.

Amazon $(AMZN)$ has reportedly canceled orders for multiple products from vendors in China and other Asian countries. And Dell $(DELL)$ has cut or trimmed laptop discounts amid tariff tensions.

Constellation Brands stock $(STZ)$ is tumbling on a disappointing forecast as the beer and winemaker says it's looking to save money.

China's leaders are expected to meet Thursday to discuss economic stimulus to combat U.S. tariffs.

Read: Here's Ray Dalio's advice on how Trump can reach a trade deal with China

A whole crop of Fed speakers is ahead, kicking off with Dallas Fed President Lorie Logan at 9:30 a.m

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The chart

Vanda Research has created a Retail Capitulation Index $(RCI)$ to illustrate, since 2020, when investors have caved to market stress and stopped buying stocks. That's as they note record-buying dip-buying from those investors since "Liberation Day" tariff announcements just over a week ago. They determined that true, broad-based retail capitulation has happened only when the RCI crosses above the 70th percentile threshold. Their takeaway: "Even prior to Trump's tariff U-turn, retail investors remained well short of capitulating. The glass-half-empty interpretation is that if this rally turns out to be a mere bear market bounce, the risk of further downside remains on the cards."

Top tickers

These were the most active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   INFY    Infosys 
   AMZN    Amazon 
   PLTR    Palantir Technologies 
   AMD     Advanced Micro Devices 
   NIO     NIO 

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-Barbara Kollmeyer

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April 10, 2025 06:47 ET (10:47 GMT)

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