Morgan Stanley and Citigroup Inc. slashed their estimates for 2025 earnings as companies kick off their first-quarter reports, joining a wave of Wall Street banks warning that tariffs will curb profit growth.

Citi’s head of US equity strategy, Scott Chronert lowered his 2025 prediction for the S&P 500 to 5,800 from 6,500, predicated on earnings of $255 a share for companies in the index, down from a previous $270 projection. At Morgan Stanley, Mike Wilson cut his 2025 earnings-per-share forecast to $257 from $271.

“The 90-day pause on reciprocal tariffs and further concessions over the weekend lessen the near-term probability of a recession, but uncertainty remains high,” said Wilson, who sees the S&P 500 trading in a range from 5,000-5,500. The index finished last week at 5,363.36.

The S&P 500 has fallen 8.8% this year on concern that investors increasingly are shifting away from US assets. The selloff was worsened by Donald Trump’s “reciprocal” tariffs policy and the tit-for-tat spat with China. Investors are rushing to game out how the effective freezing of Chinese trade will impact companies and growth.

Morgan Stanley’s Wilson warned that the S&P 500 could slump back below 5,000 and retest last week’s lows if 10-year Treasuries yields surge above 5% from the current 4.46%. A larger trade deal with China that significantly reduces tariffs still in place would cause significant upside, he said.

The first signs of a slowdown in global trade are already emerging as companies around the world hit their own pause button on orders. If anything, Trump is extending the uncertainty that has already begun to drag on business and consumer sentiment.

“No doubt, the goldilocks sentiment in place entering this year has given way to abject uncertainty,” Chronert wrote in a note. “This is for good reason as the Trump administration’s announced tariff approach is set to disrupt” a global trade system that has developed since China entered the World Trade Organization in 2001.

Companies’ attempts to pass through tariff-driven price increases threaten the US consumers’ incomes, who’s spending power has already been sapped by post-pandemic inflation.

While a recession is not their base case, the probability for a mild one remains high, according to Chronert and Wilson.

Some impacts are already visible. Delta Air Lines Inc. withdrew its full-year financial guidance due to uncertainty surrounding global trade last week.

In a difficult environment, Wilson recommends looking for opportunities in industries where prices already reflect the risks, including transports, materials, semiconductors, autos and pharma/biotech as well as hardware, while leaning towards bearish bets in areas such as consumer discretionary and staples stocks.