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Investing.com - The Trump administration’s trade agreement with China earlier this week came faster than anticipated and reduces the chances of a U.S. recession, according to analysts at BCA Research.
Still, the strategists led by Peter Berezin said a recession in the world’s largest economy remains their "base case", noting that the effective U.S. tariff rate remains at its highest level since the 1930s.
"Although tariffs have receded, they are still high enough to weigh on growth, especially given that underlying economic momentum in the U.S. was weakening going into 2025," the analysts said in a note to clients.
On Monday, Washington and Beijing announced that they had reached an agreement that would slash their sky-high respective tariffs on each other and halt the levies for 90 days.
The move comes after U.S. President Donald Trump slapped soaring duties of at least 145% on China, leading Beijing to respond with its own retaliatory tariffs of 125%.
Following the deal, the U.S. tariffs on China were brought down to 30%, folding in a baseline 10% levy and separate 20% duties related to Beijing’s alleged role in the flow of the illegal drug fentanyl. China, meanwhile, cut its tariffs on U.S. items to 10%.
After an initial surge earlier this week in the wake of the trade announcement and softer-than-anticipated U.S. inflation data, equities took a breather on Wednesday, with the benchmark S&P 500 notching only a marginal gain.
"Stocks are not pricing in much recession risk, which suggests that a cautious stance towards equities is warranted," the BCA Research analysts argued, noting that current valuations "leave little room for error".
They recommended that investors move to be underweight U.S. stocks relative to fixed income. However, they flagged that they do not have "a strong view on U.S. bond duration at the moment", citing uncertainty around Federal Reserve interest rate decisions and debate over a massive U.S. budget bill.