Stocks have sold off in recent days as investors digested President Trump’s latest round of tariffs.
The headlines are expected to intensify in the week ahead, with an April 2 reciprocal tariff deadline that Trump has dubbed “Liberation Day” looming on Wednesday.
The big questions from investors headed into the expected announcements are to what extent does Trump impose levies on trading partners and whether the moves lead to further escalation of the trade war.
“The market is going to have a lot to digest,” Veda Partners director of economic policy Henrietta Treyz told Yahoo Finance. “And they’re going to see just how forward-looking and long-term these tariffs are, which is not currently priced in.”
Ajay Rajadhyaksha, global chairman of research at Barclays, said on a call with reporters on Thursday that Trump’s recent 25% auto tariffs on foreign made-vehicles were “a bigger deal than the market is making it out to be.”
“It is a statement of intent,” Rajadhyaksha said. “And at least in my mind, it releases the risk that April 2 is something that markets can’t dismiss. I think we will be negatively surprised.”
The growing market fear is that worse-than-expected tariffs could weigh on already souring sentiment and eventually slow economic growth. The impact of tariffs has already prompted several Wall Street firms to lower their S&P 500 year-end targets. Barclays recently lowered its target from 6,600 to 5,900, the second-lowest target on the Street.
Read more: What Trump’s tariffs mean for the economy and your wallet
Should the eventual tariff rate land higher than Barclays’ roughly 15% estimate, the firm sees more potential downside risk for stocks and the economy potentially slipping into recession. The possibility of this outcome has Rajadhyaksha telling clients to “be as defensive as possible.”
“We are as defensive as I can remember in the last two and a half years,” Rajadhyaksha told Yahoo Finance in a separate interview after Thursday’s media call.
At close: March 28 at 4:46:18 PM EDT
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The economics team at Goldman Sachs also believes markets will be surprised to the downside next week. Goldman Sachs’ recent survey of market participants shows investors likely expect a nine percentage point reciprocal tariff rate, per chief political economist Alec Phillips. But Goldman Sachs’ team believes the initially proposed rate will be higher, potentially closer to double what market participants expect, Phillips wrote.
“Administration officials have said explicitly that the soon-to-be announced tariff rates are intended as the basis for negotiation, which incentivizes the administration to propose higher rates at the outset,” Phillips wrote when explaining why the team sees tariffs coming in higher than the market expects. “This occurred in the recent experience with Canada and Mexico tariffs, which twice involved a steep tariff rate that was rescinded mostly or entirely after a few days.”
