With a slew of tariff deals seemingly on the horizon, Wall Street analysts are sprinting for their economic crystal balls in a rush to revise their forecasts.
It took only one trade deal for major banks to drop the doom and gloom tone. JPMorgan lowered its odds of a recession from 60% to 50% yesterday, while Goldman Sachs cut its recession forecast from 45% to 35%.
“The administration’s recent dialing down of some of the more draconian tariffs placed on China should reduce the risk that the US economy slips into a recession this year,” JPMorgan Chief US Economist Michael Feroli wrote in a note.
The pros are also revising their labor, growth, and inflation forecasts while they’re at it: Goldman Sachs lowered its unemployment rate expectations from 4.7% to 4.5%, dropped its PCE inflation prediction from 3.8% to 3.6%, and raised its GDP growth forecast from half a percentage point to 1% by the fourth quarter of this year.
A combination of a healthy labor market, slowing inflation, and dissipating recession fears means traders now expect the Federal Reserve to lower interest rates only twice in 2025.
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But don’t get too excited yet. After all, even though manufacturers importing from China aren’t going to be blown out of the water, they’re still going to bleed a little bit.
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After the US and China decided to play nice yesterday, the S&P 500 leaped 3.3%, the dollar rose 1%, and everyone was buying tech and consumer discretionary—aka growth stocks—instead of defensive picks like utilities, indicating that investors are once again all in on the US.
But savvy investors know it's not wise to jump on a bandwagon. After all, this is a trade war ceasefire, not a lasting peace agreement.
That’s why Goldman Sachs Chief US Equity Strategist David Kostin says to look for businesses with margins that are strong enough to deal with tariffs—no matter what size they are.
“We continue to recommend investors focus on stocks with high pricing power that can maintain margins in the face of elevated input costs,” Kostin wrote. “Despite the recent improvement in the growth outlook, tariff rates will likely be substantially higher in 2025 than they were in 2024, putting pressure on profit margins.”
A few specific stocks Kostin highlighted with high pricing power include Meta Platforms, Booking Holdings, Exelixis, Sherwin-Williams Company, Paychex, Altria Group, Antero Midstream Corp, and Dolby Laboratories.—LB