At the end of the first quarter, the S&P 500 is reeling -- don't expect a March Madness-style comeback soon.

The benchmark index is on track for its worst quarter since 2022, largely driven by concerns about President Donald Trump's tariff policy, and trading continued to be dismal on the final day. Things could get worse -- White House advisors are considering tariffs of up to 20% on virtually all U.S. trading partners, according to The Wall Street Journal.

There remains some hope in the market that Wednesday's "Liberation Day" tariff announcement could mark a turning point by removing the uncertainty. If the Friday jobs report continues to show a broadly healthy labor market and Tesla defies fears about its delivery figures on Wednesday, maybe sentiment could improve.

That's likely too optimistic. Trump's tariffs will likely spark retaliation from other countries and it's hard to judge where an escalating trade war will end. The probability of a U.S. recession in the next 12 months has risen to 35% from 20%, according to Goldman Sachs, which also forecasts a 5% fall in the S&P 500 over the next three months.

When can investors hope to see light at the end of the tunnel? Probably not until the latter part of the year when it should become clear what the new base level of tariffs will be and the focus could shift to Trump's planned tax cuts. By that point, the Federal Reserve could well be cutting interest rates, with the possibility of steeper reductions in reaction to any tariff-induced economic weakness.

There is still hope for a turnaround but without a buzzer-beating reversal from Trump, the second quarter could be tough to watch.

-- Adam Clark

*** Join Barron's senior managing editor Lauren R. Rublin, deputy editor Ben Levisohn, and senior writer Avi Salzman today at noon when they discuss the outlook for energy prices and stocks, and other themes in energy investing. Sign up here.

***

S&P 500 Forecast Cut, Recession Odds Raised by Goldman

Goldman Sachs, one of the most influential investment banks on Wall Street, lowered its targets for the S&P 500 and increased the odds of a U.S. recession in the coming year. Both reflect concerns about economic damage from President Donald Trump's tariffs.

   -- Strategists led by David J. Kostin now see the S&P 500 falling 5% to 
      5,300 over the next three months, compared with a previous forecast for 
      the index to be flat. In the coming 12 months, they have the index up 
      just 6% to 5,900 compared with a previous prediction that it would gain 
      16%. They also lowered forecasts for earnings growth in 2025. 
 
   -- At the same time, the economics team led by Jan Hatzius lifted the 
      probability of a recession in the 12 months to 35% from 20%. That 
      reflects revised assumptions for tariffs -- they now see them rising by 
      15%, compared with the analysts' previous expectation for a 10% increase. 
      That will fan inflation as well as weaken growth, they said. 
 
   -- Over the past few years, Goldman has been one of the more optimistic 
      houses when it comes to the outlook for growth -- and it has been right. 
      It was one of the few forecasters to say the Federal Reserve's rapid 
      interest-rate increases starting in 2022 would be unlikely to trigger a 
      contraction. 

What's Next: While Goldman noted its market sentiment index has declined sharply in the past few weeks, the reading remains higher than during past selloffs. Strategists said investors should look for an improved growth outlook before assuming the market has hit a bottom, and they recommended looking for stocks with the least variable earnings growth over the past decade.

-- Brian Swint

***

This Week's Jobs Report Comes Amid Waning Confidence

Amid waning consumer confidence and a constant barrage of headlines about cuts to the federal workforce, Friday's job report for March is another flashpoint for stocks. The worries have led economists to slash their growth outlooks, with some even calculating increasing odds that a recession is coming.

   -- Economists expect Friday's report to show the economy added 138,000 
      nonfarm jobs in March, slowing from the 151,000 added in February. The 
      first inkling will come in Wednesday's private payroll report from ADP, 
      expected to say employers added 119,000 jobs for the month. 
 
   -- Job openings are expected to remain about where they were in February 
      compared with January, and the weekly jobless claims numbers on Thursday, 
      reflecting filings from last week, are expected to remain about flat with 
      the week before that. 
 
   -- While a deterioration in so-called soft data such as consumer sentiment 
      doesn't automatically mean recession, it does help tip the "hard data" 
      such as jobs and retail sales in that direction, Moody's Analytics' chief 
      economist Mark Zandi, told MarketWatch. 
 
   -- The unemployment rate is expected to tick higher for March to 4.2% from 
      4.1%, according to FactSet. Friday's report is the first one to fully 
      reflect the period when federal government job cuts began after President 
      Donald Trump took office. 

What's Next: The fog of uncertainty in the markets makes forecasting tricky. Economists are having a tough time modeling growth outlooks given the unknowns about trade and fiscal policy in the months ahead. The Fed has signaled it won't ease interest rate policy until it gets a clear picture.

-- Dam Lam and Janet H. Cho

***

Trump's 'Liberation Day' Is Coming. Markets Want Clarity on Tariffs.

This week also features President Donald Trump's much-discussed "Liberation Day," or broad tariffs on imported goods from countries with a U.S. trade imbalance. Clarity is a separate issue. The Wall Street Journal reported Sunday the administration was weighing a 20% across the board levy on all goods.

   -- Trump raised the tariff ante on Sunday, threatening to slap on additional 
      levies related to Russian oil and Iran as retaliation for either taking 
      cease-fire negotiations on Ukraine in the wrong direction (Russia) or 
      failing to reach a peace agreement (Iran). He also threatened to drop 
      bombs on Iran. 
 
   -- The comments were made in two interviews with Meet the Press' Kristen 
      Welker. Trump also said he "couldn't care less" if car makers raise 
      prices after tariffs on foreign autos and auto parts, saying it will push 
      sales of American cars. Many American cars are at least partially made 
      overseas. 
 
   -- A CBS News poll found that 52% of Americans disapprove of Trump's 
      handling of the economy, and 56% disapprove of Trump's handling of 
      inflation. About 55% of Americans believe the president is focused on 
      tariffs "too much," while 38% said he is focusing the right amount on 
      them. 
 
   -- Analysts are hoping April 2 brings clarity rather than Trump's vague 
      threats. Wednesday's announcement was expected to be about 25% tariffs on 
      some countries, not sweeping levies. Analysts want to know which imports 
      and countries will be targeted, and the timeline, and hear assurances 
      that the rate set won't change. 

What's Next: Trump wouldn't rule out running for a third term, telling NBC there are methods that would allow him to do so without offering specifics. He said it was because he's popular, and people want him to do it but it's still early days. He said he isn't joking about it.

-- Liz Moyer

***

Tesla Continues to Battle a Perception Problem

Tesla has been battling some bad press lately, including the organized protests outside its dealerships nationwide on Saturday, which went mostly without incident. But on other matters it has continued to roll on, including generating hundreds of millions in income from selling regulatory credits to other auto makers.

   -- While the Trump administration could still stop it, Tesla continues to 
      find auto makers to buy the credits, especially to meet European CO2 
      emissions rules. Stellantis will buy carbon credits from an electric 
      vehicle pool led by Tesla. Rules there say 25% of 2025 auto sales have to 
      be zero-emission. 
 
   -- Tesla's regulatory credit income of $10 billion since 2019 is 25% of its 
      total operating income in that time. Most of the income comes from a 
      state policy in California, which has a federal waiver to regulate carbon 
      emissions. President Donald Trump could try to revoke the waiver but 
      hasn't. 
 
   -- It's CEO Elon Musk's tight relationship with Trump and his work slashing 
      the federal government for the administration that prompted this 
      weekend's Tesla Takedown protests. Musk's activities have made Tesla a 
      political symbol, weakening sales in the U.S. and Europe. Analysts 
      believe that Musk's activity has damaged Tesla's brand. 
 
   -- Musk's artificial intelligence company xAI has acquired his social-media 
      platform X in an all-stock deal that he said values xAI at $80 billion 
      and X at $33 billion. The move was reminiscent of Tesla's 2016 purchase 
      of SolarCity, a home solar panel company where he was board chair. 

What's Next: More data on whether Tesla has blunted the sales slump is expected Wednesday, when Tesla reports its first quarter sales. Analysts expect Tesla to deliver 360,000 to 370,000 cars for the period. At the high end, that would be down 4% from last year.

-- Al Root and Janet H. Cho

***

Debating the Next Phase for Artificial Intelligence and Stocks

Investors have both under- and overestimated artificial intelligence. It has yet to cure cancer or drive a car across the country, but AI has upended corporate strategy and spending, opening an age of rapid problem solving, enhanced productivity, and machine-driven creativity. The Barron's Tech Roundtable explored what's next.

   -- Felise Agranoff, portfolio manager at J.P. Morgan Asset Management, 
      talked about AI capital spending. They are still bullish on the long-term, 
      but they see more risk to increased capital spending in the intermediate 
      term and are cutting back on stocks with direct exposure to AI capital 
      spending. 
 
   -- Gavin Baker, chief investment officer at Atreides Management, doesn't see 
      a slowdown, however. It's too big a risk not to buy Nvidia's 
      next-generation Blackwell AI chip. Everyone is chasing the likes of 
      Google, Meta Platforms, Microsoft, and OpenAI. He sees a strong year of 
      spending ahead. 
 
   -- Depending on the return on investment, spending is going to be really 
      strong in the second half of the year, Baker said. If the next generation 
      of models is significantly better and companies can charge more for an AI 
      agent that can do the work of humans, spending could go on for a while, 
      he added. 
 
   -- Denny Fish, head of Janus Henderson's technology research, said there's a 
      reasonable argument that the AI trade leads the stock market, but in a 
      different way than it has. He said a rising tide will lift all boats for 
      a while until the winners start to separate themselves. 

What's Next: Tony Kim, head of the global technology group in BlackRock's fundamental equities division, said one wild card is whether there will be a recession. But people aren't buying the AI trade just for this year; they're looking at it continuing in 2026 and 2027. For more, read here.

-- Alex Eule

***

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***

-- Newsletter edited by Liz Moyer, Patrick O'Donnell, Rupert Steiner

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March 31, 2025 06:47 ET (10:47 GMT)

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