Investors, still waiting for U.S. trade deals, see a return to April’s lows in stocks as a risk

U.S. stocks could retest April’s lows as investors seek progress from the White House on trade deals.

Optimism around trade negotiations helped the S&P 500 index recoup its losses in the wake of President Trump’s April 2 “liberation day” tariffs — but the rally has left little room for disappointment on where the levies ultimately shake out.

Selling pressures were picking back up in stocks to start this week, with investors eager for progress on trade deals and anxious about the potential damage already inflected to the economy.

“I think the market is pricing in baseline tariffs prior to ‘liberation day,’” said Emily Bowersock Hill, chief executive and founding partner of Bowersock Capital Partners in Kansas, in a Tuesday interview — gauging the “priced-in” tariff level for stocks at about 5% to 10%.

Before Trump’s 90-day partial pause on extra tariffs against most countries, with the exception of China, he raised the average effective tariff rate in the U.S. to about 25% — the highest level in over 100 years — from roughly 5% previously, according to J.P. Morgan Wealth Management.

“One of the reasons the market has rallied so much is the expectation that the administration is going to use this pause as an off-ramp,” Bowersock Hill said.

Tariff countdown

Billionaire hedge-fund investor Paul Tudor Jones on Tuesday described Trump’s existing tariffs as the biggest tax increase in the U.S. since the 1960s, he said in an interview with CNBC’s “Squawk Box.”

Jones also expects Trump to dial back China tariffs to about 40% or 50%, but said that even at those levels stocks still could visit new lows. Furthermore, he expects higher tariffs to start slowing the economy, prompting the Federal Reserve to come off the sidelines to resume interest-rate cuts and opening a window for stocks to rally.

The S&P 500 closed at a record high of 6,144.15 on Feb. 19, before tumbling almost 19% to a 4,982.77 low on April 8 — the same day Trump paused some tariffs, which sparked a powerful rally. The index finished about 8% below its record close on Monday.

Trump on Tuesday met with Canada’s new prime minister, Mark Carney, as trade tensions threaten the countries’ alliance. In an Oval Office interview, Carney reiterated that Canada will “never” be for sale, after Trump suggested a matchup of the nations would be advantageous.

Earlier in the day, Jan Hatzius, economist at Goldman Sachs, said his team thinks preliminary U.S. trade agreements with a few countries could follow soon.

“The mood music with China has improved, and we expect the U.S. tariff rate on China to drop from around 160% to around 60% relatively soon,” Hatzius wrote in a Tuesday client note.

Goldman economists expect the U.S. to cut China’s tariff rate soon.

Importantly, China also would be expected to cut its tariff rate on U.S. goods by a similar amount, Hatzius noted. The current tariff rates have largely put trade between the two nations on pause.

A view from Kansas

Bowersock Hill said concerns around tariffs were starting to sink in as people see their 401(k) plans swing wildly in value. She expects Trump to see “very little” progress on reworking globe trade before his 90-day tariff pause expires in early July, given the short time frame. But she also expects any progress to be highlighted by the White House so it can “declare victory and move on.”

Bowersock Hill — who oversees $850 million in assets at her firm, and serves on the investment committee of the roughly $25 billion Kansas Public Employees Retirement System pension fund — pointed out that Britain and India made news on Tuesday with a new trade agreement that was three years in the making.

While pension funds tend to be slow-moving rather than tactical, Bowersock Hill said the “sell America” trade likely still has legs, adding that KPERS had hedged its currency risks and was nearly evenly split between U.S. and international stocks.

“I would not be at all surprised to see stocks retest the lows of early April,”
Bowersock Hill added.

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite indexes were each headed for back-to-back losses on Tuesday, according to FactSet. The ICE U.S. Dollar Index was down 0.5%, putting its decline this year against a basket of rival currencies at 8.5%.