Trump's Tariff War Pause Is Useless! JPMorgan: U.S. Stocks Will Continue to Correct, Uncertainty Is the Key

David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, warned that despite President Trump's 90-day reprieve on his "reciprocal tariffs," the uncertainty surrounding tariffs will continue to weigh on US stocks.

According to Kelly, the biggest tax currently imposed on the US economy by Washington is the "uncertainty tax." He believes that the White House has not done enough to eliminate tariff uncertainty, making it difficult for the US stock market to achieve a sustained rebound.

On Wednesday, following a major reversal in Trump's "tariff stance," the three major US stock indices surged violently, with the Nasdaq rising over 12%, marking the second-largest single-day gain in history. This was widely regarded as a "dead cat bounce." By Thursday, as optimism faded and investors regained their composure, the three indices collectively pulled back significantly.

Kelly stated in an interview, "The tariff issue still exists. It is layered on top of the economy, and people realize that the economy is being hurt by many other things, such as cuts in overall government spending, the potential for further reductions in government spending, and uncertainty about where to find workers due to the crackdown on immigration."

According to him, the market realizes that if the White House's current policies remain unchanged, the US could fall into a recession this year. Kelly said, a turnaround in the US stock market requires "at least stabilizing tariff policies" and a "reversal" in imposing tariffs on China.

He emphasized that tariff uncertainty makes it difficult for businesses to cope.

Kelly said, "The biggest tax currently imposed on the US economy by Washington is the uncertainty tax. The problem is that businesses don't know what to do, which leads them to stop hiring and cut costs."

He added that tariffs on China would cause "massive disruptions" for businesses of all sizes across the US.

"Tariffs are so destructive. That's why we haven't really imposed serious tariffs since the 1940s," he said.

Kelly is not alone in believing that US stocks will continue to pull back. Goldman Sachs also noted in its latest report that the risk of a US stock pullback has remained high since January. Even though US stocks have already fallen significantly in recent weeks and Trump canceled most tariffs on Wednesday, they still believe the risk of further declines in US stocks is high.

However, some analysts believe now is a good time to buy the dip. Barry Bannister, Chief Equity Strategist at Stifel, said in an interview that historically, buying stocks when the CBOE Volatility Index surges to levels indicating market panic (around 45) has paid off in the following months.

"You have to buy when there's blood in the streets. It feels very bloody right now," he said.

Bannister stated that, at least for now, he maintains his target of the S&P 500 reaching 5,500 by 2025. This is higher than the index's current level but lower than its level at the beginning of January. Bannister said he expects the global trade war to become clear by June, and while the US economy will slow this year, it will not fall into a recession.