UBS: Despite a Pause in the Tariff War, Investors Should Use Stock Market Bounces to Sell Stocks

Vyacheslav Dvornikov

Apr 16, 2025

Investors should sell stocks on any rallies until more is known about how tariffs will affect economic growth, said UBS chief strategist Bhanu Baweja. According to him, "there is always a possibility" that the S&P 500 could fall below 5,000 points (compared to the current 5,397 points). The bank's year-end target is 6,400 points, but it is under review.

In a letter to the bank's clients published last Thursday, Baweja stated that the 90-day pause in the implementation of increased U.S. trade tariffs has led to a significant reduction in the so-called negative "tail risk." This refers to unpredictable and extreme events that could lead to a market crash and significant losses for investors. But even reduced tariffs "will imply a serious blow" to economic growth. 

The strategist argues that the stock sell-off before the rally on Wednesday did not fully price in the "economic blow" from the tariff announcement last week. According to him, the consensus suggests S&P 500 earnings growth of 11.2% in 2025 and 12.4% in the next 12 months, but this does not match what can be expected during a recession and a collapse in domestic demand that tariffs would cause. Even assuming that universal tariffs are only 10%, and on Chinese imports — 50% (they have already risen to 145% on goods from China), the blow to domestic demand could be strong enough for earnings growth to fall to single digits or even to zero. 

The strategist is also not sure that the Fed will be able to come to the rescue in the event of an economic downturn. "We expect uncertainty to negatively impact economic activity," he says. According to him, after the Fed had problems forming market participants' expectations in 2022, it is now "likely to act reactively rather than proactively." And the 90-day tariff delay is no guarantee that they will not be raised again.