Global markets are under pressure as escalating U.S. tariff policies drive investor anxiety, corporate earnings downgrades, and growing recession risks. With the S&P 500 nearing bear market territory, analysts warn that the worst may be yet to come if trade tensions continue to spiral.
The latest round of tariffs has triggered a rapid reassessment of earnings forecasts. Goldman Sachs has slashed its 2025 S&P 500 earnings-per-share (EPS) growth estimate to just 3%, while UBS has cut its forecast to zero. UBS further predicts two consecutive quarters of negative U.S. GDP growth if the tariffs are fully enacted—signaling a potential recession.
Historically, recessions have led to a median drop of 13% in S&P 500 earnings. Should a similar contraction unfold, EPS could fall to $211 in 2025. Compounding the impact, investor sentiment is deteriorating, leading to falling valuation multiples. The forward price-to-earnings (P/E) ratio on the S&P 500 has already declined from 19 at the start of the year to around 15, as markets adjust expectations for corporate profitability.
The broader selloff reflects a shift in how markets are pricing in risk. With companies facing rising input costs, supply chain disruption, and declining export competitiveness, earnings pressure is mounting across sectors. Investors are reacting by retreating from equities, rotating into cash and defensive assets as volatility surges.
There are also mounting fears of global contagion. If retaliatory tariffs from China, the EU, and other major economies take hold, the hit to global trade could deepen, undermining already fragile growth forecasts. Markets are bracing for a prolonged period of uncertainty, with central banks potentially forced to revisit monetary easing to stabilize conditions.
For now, investors remain on edge as policy risk overshadows fundamentals. Without a clear resolution to the trade standoff, equity markets may continue to slide, valuations may compress further, and recession fears could become reality. As the situation unfolds, caution is likely to dominate trading strategies across global markets.
