Wall Street strategists see more S&P 500 volatility as tariff fears kick in

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A chorus of Wall Street strategists is warning about rising volatility in the stock market, with Morgan Stanley’s Michael Wilson the latest to sound the alarm on slumping economic growth amid President Donald Trump’s trade wars.

The strategist, who was a prominent bearish voice on equities until mid-2024, said he expects the S&P 500 Index to drop as much as 5% to 5,500 in the first half of the year as corporate earnings suffer from Trump’s tariffs and lower fiscal spending. The broad equities benchmark closed Friday at 5,770.

Market forecasters at banks including JPMorgan Chase & Co. and RBC Capital Markets have also tempered bullish calls for 2025 as Trump’s tariffs stoke fears of slowing economic growth. The S&P 500 has dropped about 2% this year, and investors are questioning the lofty valuations of big technology shares.

“I don’t think anybody has more conviction today at all,”  Michael Kantrowitz, Piper Sandler’s chief investment strategist, said. “More uncertainty? Yes. A wider band of outcomes? Yes.”

Wall Street is growing angsty as investors become increasingly unnerved by whipsawing tariff policy, sticky inflation and the unknown pace of the Federal Reserve’s interest-rate easing. The Nasdaq 100 Index briefly slumped into a correction Friday as investors dumped the sector that propelled the stock market over the past two years.

The S&P 500 is down 6.1% from its record less than a month ago, and futures on the gauge point to a further decline on Monday.

While none of the soothsayers has reduced their year-end targets yet, there’s a rising sense of uncertainty just three weeks after the S&P 500 hit a record. Historically, strategists’ consensus target has typically lagged behind actual market moves by about 60 days, according to an analysis from Piper Sandler & Co.

Many have been piling into short-dated Treasuries, pulling the two-year yield down sharply since mid-February, on expectations the Fed will resume cutting interest rates as soon as June to keep the economy from deteriorating. Yields across maturities were lower on Monday, with the two-year trading below 4%.

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Bond traders are signaling an increasing risk that the US economy will stall as Trump’s chaotic tariff rollouts and federal-workforce cuts threaten to further restrain the pace of growth.

While Wilson expects the benchmark to rebound to 6,500 by end-2025, “the path is likely to be volatile as the market continues to contemplate these growth risks, which could get worse before they get better,” he wrote in a note.

Wilson said the S&P 500 could sink 20% in the likelihood of a recession. “We are not there, but things can change quickly and so it’s useful to know the downside in the bear case to manage one’s risk,” the strategist added.

In the short term, however, Wilson said seasonal patterns bode well for earnings revisions as well as the S&P 500’s performance. Nomura Securities cross-asset strategist Charlie McElligott also sees lower odds of a market meltdown following a controlled decline in the benchmark index so far.