MW Here are the best - and worst - tariff scenarios for the stock market as investors await Trump's announcement

By William Watts

Investors can't rule out a 'total wildcard surprise'

Traders like to talk about what's priced into the market ahead of major economic data or other potentially market-moving events as a way to think about what might cheer or disappoint investors once the news arrives.

It's far from an exact science, and the chaotic runup to President Donald Trump's self-styled "liberation day" announcement on tariffs, scheduled for after Wednesday's market close, is making the exercise more difficult than usual.

"Normally, when these types of events loom, the market has a pretty good idea of what to expect. ... But because of the unorthodox communication strategy of the administration, it's very hard to try to nail down the list of possible outcomes for today's announcement and a total wildcard surprise is possible," Tom Essaye, founder of Sevens Report Research, said in a note.

Stocks opened lower on Wednesday but reversed course to trade with solid gains in afternoon activity, with the Dow Jones Industrial Average DJIA up around 316 points, or 0.8%, while the S&P 500 SPX advanced 0.9% and the Nasdaq Composite COMP jumped 1.3%. Stocks fell sharply in the first quarter, with weakness tied in large part to fears that a global trade war could spark a significant economic slowdown or recession. The S&P 500 in March fell more than 10% from its Feb. 19 record close, pushing it into correction territory.

Read: It's Trump's 'liberation day.' Where investors are hiding as tariff fears spark stock-market selloff.

The Trump team was still deciding on the plan for his latest tariffs as the big reveal neared, according to multiple published reports, even though the president on Monday night told reporters he had settled on an approach.

Among the widely reported options are a 20% tariff on almost all imports into the U.S., or a reciprocal plan aimed at matching U.S. tariffs to levies imposed by trade partners. Other potential measures include an across-the-board tariff on a subset of countries that would likely be less than 20%, according to a Wall Street Journal report. A Bloomberg News report said tiered reciprocal tariffs were possible as well, with countries facing levies of either 10% or 20%, depending on the extent of their trade barriers.

Undeterred by the wide range of options, Essaye nonetheless took a stab at laying out the possible parameters for reactions ranging from "good" to "bad" to "ugly."

The "broad expectation," he wrote, is for reciprocal tariffs to come in somewhere around 20%. A "good" scenario would see reciprocal tariffs of less than 15%, accompanied by a promise to negotiate with trading partners on tariff reduction. An explicit promise to negotiate would help ease fears that the tariffs are meant to be permanent, Essaye said.

Such an outcome could spark a "relief rally" in the stock market - not because reciprocal tariffs are a market positive but because the levies are less onerous than feared, he explained. Given the declines already suffered by stocks, a bounce of 1% or more isn't difficult to imagine, though it may not be enough to end the current pullback, he said. The dollar would likely rise, along with the 10-year Treasury yield BX:TMUBMUSD10Y, while gold (GC00) might drop back after its recent run-up fueled by safe-haven flows.

A "bad" outcome would be one in which Trump announces reciprocal tariffs of 15% to 20%, along with a promise to negotiate. Essaye said there appears to be a "loose consensus" among investors for reciprocal tariffs of 15% to 20%, so an announcement along those lines should be at least somewhat priced into the market.

Stocks would likely stumble, although the downside for the S&P 500 would likely be a drop of less than 1%, he said.

What would it take for an "ugly" outcome? Reciprocal tariffs of more than 20% and no promise to negotiate with partners on tariff reductions would be a worse-than-feared result, leading to a spike in recession fears due to the larger-than-expected levies, Essaye said. Investors would view the tariffs as permanent rather than something that could ultimately lead to global tariff reductions.

In that scenario, the S&P 500 would likely suffer a sharp fall of more than 1%, while worries over the outlook for growth would pull down Treasury yields, with the 10-year likely dropping below 4%. The dollar would also fall, Essaye said, while gold would be the "big winner," with a likely rally of more than 1%.

Victor Reklaitis contributed.

-William Watts

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April 02, 2025 13:58 ET (17:58 GMT)

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