Having turned "tactically bearish" yesterday for the first time in years (having previously stubbornly - and correctly - stuck to its bullish bias even when former JPMorgan chief equity strategist Marko Kolanovic turned bearish in late 2022 and stayed that way until his departure from the bank) following Trump's promised (and delivered) tariffs, JPMorgan's Market Intel team is understandably seeing the market in a glass half full perspective, and today's bounce was no different as the following comment from the Market Intel's EOD wrap demonstrates.
Below we excerpt from the full Afternoon Briefing note (available to pro subs) from JPM Market Intel head Andrew Tyler:
Stocks finished higher today on the back of Lutnick’s comments on potential relief on Canada/Mexico tariffs. While yesterday’s tariff comments “meet in the middle” were initially interpreted as potentially lowering tariff risk, Lutnick’s Bloomberg interview this morning and the 1PM White House press briefing both commented on keeping the 25% level but having exceptions (such as autos) from the tariffs. Stocks rallied on the back of eased tariff pressure in the afternoon.
Does this ease any tariff risks in the near-term? We don’t think so. While equities seem to be more optimistic on lower tariff risks, we still face a high level of uncertainty:
- The auto tariffs is only delayed, not fully excluded
- Canadian officials commented on “Canada won’t scrap tariffs unless all US levies are lifted” suggesting potential further escalation;
- The April 2 reciprocal tariffs have been reiterated by both the press briefing and Lutnick’s comments.
Beyond US equities, we saw outperformance in both EMEA and APAC. Yesterday’s NPC in China boosted the China Tech sector (KWEB +7% today). JPM Economist Haibin Zhu pointed out that the policy targets from the NPC so far have been largely in line with consensus, but price actions suggest more optimism around China growth and tech revival.
DAX rallied 3.4% and is now +16% YTD (vs. -0.6% in SPX): part of this recent rally was driven by the robust defense spending and the country’s move to lift debt limit. Since Tuesday’s morning briefing, we switched our view on US equities to tactically bearish and see better opportunities in global equities (full note here).
Our view coming into 2025 was that the 2.9% average growth witnessed over the last 2.5 years would continue and improve based upon the strength of the household and corporate sectors. That view is diminished due to the Trade War 2.0 as illustrated by Feroli cutting his 25Q1 real GDP estimate from 2.25% to 1.5%.
Further, we felt tariffs were a negotiating tactic rather than a structural change. We appear to be wrong.
While Lutnick’s comments from yesterday were supportive of the bullish outlook, his clarification today is that 25% is the level but there will be some exemptions (Autos?) means that the current FY25 real GDP outlook is likely too high and SPX EPS estimates are also too high. In terms of the “right” level, that is a work in progress as we obtain details on the trade war.
For our risk, we like being OW international equities (China, EU, and Japan) with Latam upside expressed derivatively. We have shorts across the US but remain long Mag7 based upon the potential reboot from Semis earnings this week which could aid the AI trade.
