What Could Trump’s Reciprocal Tariffs Mean for the Stock Market?

Wall Street was on edge Wednesday as market participants awaited President Trump’s announcement of reciprocal tariffs after months of speculation. 

Trump is scheduled to lay out a plan for reciprocal tariffs, intended to match the levies that trading partners put on U.S. products, at 4 p.m. ET Wednesday. Investors and economists are unsure what shape the tariffs will take—they could be tailored to specific products, industries and countries or be a flat rate applied to all imports. It’s also unclear how the Trump administration is calculating the tariffs they want to match. For example, will the tariffs account for currency controls that make another country’s products cheaper for international buyers? And if so, how does that translate into a tariff rate? 

The high level of uncertainty has left most analysts urging caution in the lead-up to Wednesday’s announcement. “It’s tough to lay out a tariff playbook for investors right now, so our advice is to wait and see,” wrote LPL Financial analysts in a note on Monday. “As potential dip buyers, we’re not in a big hurry.”

Ultimately, LPL analysts expect volatility to persist in the near term but remain optimistic about the long-term outlook. They expect the S&P 500 to end the year between 6,275 and 6,375, which would represent at least 11% upside from Tuesday’s close.

“The key to the year will be how much spinach markets must eat (tariffs) before the candy comes later (tax cut extensions, deregulation, and more Federal Reserve [Fed] rate cuts).”

Analysts See ‘Opportunity for Upside’

LPL’s analysts see some reason for optimism. Stocks, they said, are “on a good footing,” with corporate earnings growing, unemployment low, and the Federal Reserve still in a position to cut interest rates. Plus, the last time trade uncertainty reached current levels—during Trump’s first term, in 2019—stocks rallied once the fog cleared. 

“We don’t want to sound too bullish, and we remain cautiously neutral right now, but the opportunity for upside is there,” the analysts wrote. 

Analysts at Janus Henderson also see some signs that markets have grown overly pessimistic about the tariff threat. Survey results, they say, show “sentiment among US retail and professional investors has soured to an extreme extent,” which is often a precursor to market gains. 

Though they caution other indicators point to considerable downside risk. Investor surveys suggest expectations are more closely aligned with tariff rhetoric than they were during the post-election rally, but “remain to the moderate side” of the most extreme possibilities. Wall Street might be taken by surprise if Trump comes out swinging Wednesday. They also note that there have been relatively few signs of capitulation among institutional investors, who could add to selling pressure if sentiment deteriorates further. 

Morgan Stanley Sees ‘Maximalist Starting Point’

Morgan Stanley analysts expect Trump to stake out a “maximalist starting point for bilateral negotiations” on Wednesday, meaning “policy uncertainty and growth risks are likely to persist.”

Morgan Stanley’s baseline scenario assumes Trump’s announcement on Wednesday focuses on ramping up existing tariffs on China, product-specific tariffs on Europe, a continuation of the USMCA exemption for goods from Mexico and Canada, and some product-level tariffs on Asian economies. Analysts say this scenario offers stocks some upside; the USMCA exemptions could act as an “off ramp” for Canada and Mexico, which would offset risks from higher China rates. 

“However, we think [S&P 500] upside is likely capped at 5800-5900 in the near term even in a less onerous April 2nd tariff outcome,” the analysts wrote. On the flip side, the index could test the 5,500 level in a more onerous scenario in which the USMCA exemption expires and country-level tariffs are applied to Europe and major Asian trading partners like Vietnam, Japan, South Korea, and India.