S&P 500 has more room to fall as U.S. tariffs still at highest level since 1930s

The S&P 500 could face further downside as financial markets are not yet fully pricing in a U.S. recession, despite an economic backdrop weighed down by historically high tariffs, BCA Research said in its latest report.

“Despite postponing the ‘reciprocal’ tariffs, the current tariff rate is still the highest since at least the 1930s,” said Peter Berezin, Chief Global Strategist at BCA Research.

While some reduction in China-specific tariffs is possible, Berezin believes that this would likely be offset by new levies on sectors such as agriculture, copper, and semiconductors.

The prolonged uncertainty is already rippling through the economy. Job openings are falling, inflation expectations are rising, and real wage growth is expected to turn negative later in the year.

“Real wage and salary income was up only 1% year-over-year in February and is likely to turn negative later in 2025. This will cause consumer spending to stall,” Berezin warned.

Even without the trade shocks, the U.S. economy had been weakening. Retail sales in cyclical categories were contracting, delinquencies on credit cards and auto loans had surged, and excess pandemic savings had been depleted.

BCA also flags a rise in corporate loan stress, declining capital expenditure (capex) intentions, and a record vacancy rate in the office sector.

“Barring a dramatic further de-escalation of the trade war, the U.S. and much of the rest of the world will enter a recession over the next few months,” the investment research firm said in the report.

From a market perspective, Berezin argues that equity valuations and credit spreads still indicate investors are underestimating the risks. Pointing to the current price-to-earnings (P/E) ratio, credit spreads, and commodity prices, he thinks that the markets “are not yet fully pricing in a recession.”