Any risk rally may be short-lived as long as Trump’s tariff announcement keeps coming in, one analyst says

Uncertainty around tariffs and fears about a recession sent both the S&P 500 and the Nasdaq Composite into correction territory earlier this month.

Investors might hope that President Donald Trump will announce his remaining tariff plans all in one go on April 2, dispelling a cloud of uncertainty that has dented consumer and business sentiment, as well as the stock market. They’d best not count on it.

Trump has repeatedly touted April 2 as “Liberation Day,” when he plans to implement reciprocal tariffs on goods from countries with trade imbalances with the U.S., though the exact target countries and the amount of tariffs to be imposed are unclear.

If “Liberation Day” does mark the peak of Trump’s tariff plans, it may help stabilize stocks prices and potentially push them higher, analysts said, after uncertainty around tariffs and fears about a recession sent both the S&P 500 and the Nasdaq Composite into correction territory earlier this month.

“It’s a common maxim that ‘markets hate uncertainty,’ and the ambiguity around the tariff announcement has undoubtedly hit risk sentiment already,” Matt Weller, global head of market research at StoneX, wrote in a recent note. “We may see a small relief rally in risk assets and the greenback once the announcement is behind us,” Weller said. 

However, as long as Trump keeps announcing further tariffs after April 2, “any risk rally may be short-lived until traders are confident that the relentless stream of economy-disrupting policies are fully behind us.” Weller noted. 

U.S. stocks ended lower last week, with the Dow Jones Industrial Average down 1% to 41,583.90. The S&P 500 fell 1.5% over the week, and the Nasdaq Composite finished the week 2.6% lower.

For risk assets to see a sustainable rally, investors may need to see actions from the Trump administration that indicates April 2 marks the finale of the tariff saga, analysts and investors said.

“If the president wants to improve the U.S.’s growth prospects he’s best served by making it ‘clarity day’ not liberation day,” Steve Barrow, head of G10 Strategy at Standard Bank, wrote in a recent note.

“How can the administration deliver this clarity on April 2? It could state that the list of tariffs delivered on, or before, April 2 is the final one meaning that those that have escaped the list will not be targeted in the future. It also means that the tariffs are introduced according to an immutable timeline that avoids any of the ‘on again, off again’ shenanigans. It also implies that the reciprocal tariff rates applied to countries are immutable as well with no threats of an increase and no promises of future reductions,” Barrow said.

“There should also be no exemptions and no promises of future exemptions. And there should also be a final and definitive list of product tariffs that the administration wants to impose, such as those on autos,” Barrow said.

However, that seems unlikely, Barrow acknowledged. The Trump administration tended to use tariffs as a bargaining tool and is likely to continue to do so in the future, he added.

What’s more, the recent use of what Trump referred to as “secondary tariffs” on countries further reduces the likelihood that April 2 is the peak of trade uncertainty, a group of strategists at Evercore wrote in a March 26 note.

Last week, Trump signed an executive order to impose a 25% tariff on all goods imported into the U.S. from any countries that buy Venezuelan oil, either directly or indirectly. The tariff is slated to take effect on April 2.

If the U.S. starts using such secondary tariffs to amplify its existing sanctions against certain countries, then the scope of tariffs could significantly extend beyond the reciprocal and sectoral tariffs that have been in focus, the Evercore strategists wrote. 

“And if Trump finds success with Venezuela situation, he could also be emboldened to use secondary tariffs to bolster the United States’ global leverage in advancing any number of other foreign policy objectives,” according to the strategists.

What complicates the situation even more is that it’s hard to calculate what the market has priced in, as the full scope of Trump’s tariff plans is unclear.

For now, the market has been “adjusted to where we are” in terms of the tariffs, Rob Haworth, senior investment strategist at U.S. Bank, said in a phone interview.

“I think the market has done two things. One, it has incorporated the existing data and existing tariffs. Two, it has applied an uncertainty premium for that, meaning it doesn’t know how big or how far” the tariffs may reach, Haworth said.

The uncertainty around tariffs has also led stock investors to favor low-volatility stocks and value stocks lately, as big-tech stocks underperform for the past few weeks, noted Jed Ellerbroek, portfolio manager at Argent Capital. For that to change and for investors to become more willing to take risks, investors will also need to see more clarity around tariffs, Ellerbroek said in a call.

In the upcoming data-heavy week, investors will watch the ISM manufacturing and job openings data on Tuesday, the ADP employment data on Wednesday, the initial jobless claims, U.S. trade deficit and the ISM services data on Thursday. The jobs report is due on Friday.