U.S. stock futures rise after U.S.-Japan trade deal; Tesla, Alphabet earnings due
Investing.com -- Barclays analysts warned in a note Friday that U.S. stocks could face further downside if recently proposed tariffs take full effect, increasing the risk of a deeper market selloff.
“Recession odds have materially increased, in our view,” Barclays (LON:BARC) said, adding that the tariffs announced on April 2 could drive S&P 500 earnings per share (EPS) below their previous bear-case estimate.
According to Barclays, if the tariffs are implemented rather than negotiated down, “EPS for SPX ex-Tech [could] decline -9.4% Y/Y in 2025.”
This is “materially worse than the bear case scenario of -8.3%” projected in March, the analysts said. While tech stocks may initially appear resilient, Barclays warned that “Tech would also not be immune.”
Valuation concerns add to the pressure. “We are now below 20x NTM EPS, which could spell more trouble ahead,” Barclays said.
This valuation level had acted as a support since early March, but the S&P 500 broke below it after the tariff announcement.
“Consolidating below 20x signals a step function higher in potential downside,” the analysts wrote, as investors adjust forecasts to account for higher inflation and weaker economic activity.
Barclays used historical data to size the potential selloff, noting that in past non-recessionary bear markets, there was an average peak-to-trough price drawdown of -25%, lasting an average of 6 months.
If the current downturn follows this pattern, the bank says we could be halfway through in both magnitude and duration.
However, in a full recession, Barclays warned, “bear markets are much more dire with an average peak-to-trough price drawdown of -42%, lasting an average 19 months.”
While stocks often recover before earnings estimates bottom out, Barclays cautioned that “NTM EPS showed a slight wobble in January but have not rolled over yet, which could spell more weakness ahead for SPX.”