Wall Street's Recession U-Turn After China Tariff Pause

Dear Reader,

A dramatic shift is unfolding on Wall Street.

Just weeks after predicting economic doom, major financial institutions are now rapidly backpedaling on their recession forecasts.

The catalyst?

The administration's decision to pause tariffs on Chinese goods.

This policy reversal has transformed the economic outlook almost overnight. Let's examine what's happening and why it matters to your portfolio.

The Recession That Might Not Happen

JPMorgan's chief economist Michael Feroli, who led Wall Street's recession chorus after the initial tariff announcement, has now changed his tune.

"Recession risks are still elevated, but now below 50%," he writes…

Citing the effective $300 billion "tax cut" for American consumers as tariff rates drop from 24% to 14%.

He's not alone:

• Goldman Sachs: Reduced recession probability from 45% to 35%
• Barclays: Completely abandoned their recession forecast
• Yardeni Research: Raised GDP growth projections from 0.5-1.5% to 1.5-2.5%

The market has noticed.

Recession odds on prediction markets have plummeted from 51% to below 40% in just days, while strategists race to raise their year-end S&P 500 targets:

• Yardeni: Increased from 6,000 to 6,500
• Goldman Sachs: Raised from 5,900 to 6,100

Yesterday’s Market Snapshot

Source: Yahoo Finance, Google Finance, and CNBC

Why This Matters To Your Money

The $300 Billion Consumer Windfall

The tariff reduction functions as an immediate economic stimulus.

With Americans no longer facing steep price increases on Chinese imports, consumer spending—the engine of our economy—now has room to grow rather than contract.

This single policy shift transforms what JPMorgan had projected as "modest contraction" into "modest growth" for the second half of 2025.

Supply Chain Relief

Before the tariff pause, economists warned about slowing cargo shipments triggering a cascade of economic problems: lower inventory → higher prices → reduced spending → job cuts.

This threat has now diminished significantly.

As Barclays' chief US economist Marc Giannoni notes,

"These lower tariff rates on China will be considerably less disruptive for domestic activity, labor markets, and less inflationary than prior rates."

Market Sentiment Shift

The improved outlook is already influencing investment strategies.

Goldman Sachs equity strategist David Kostin explains their raised market forecast: "We incorporate lower tariff rates, better economic growth, and less recession risk than we previously expected."

What This Means For Your Portfolio

While Wall Street's mood has brightened considerably, several important questions remain:

1. Is this just a 90-day reprieve? The tariff pause has a defined timeframe. What happens when it expires?

2. Has inflation been tamed? The latest CPI report shows inflation at 2.3%—lower than expected but still above the Fed's 2% target.

3. How will the Fed respond? With recession fears fading but inflation persistent, the central bank's next moves become less predictable.

For investors, this rapidly changing landscape suggests a balanced approach:

• Equity exposure: The improved growth outlook supports maintaining appropriate stock market exposure, particularly in sectors that benefit from stable trade relations.

• Precious metals consideration: Despite recession fears easing, inflation remains above target. Gold and silver have historically served as stores of value during periods of monetary uncertainty and persistent inflation. The recent price action in precious metals (gold at $3233.61 and silver at $32.79) reflects this ongoing dynamic.

• Diversification importance: The speed with which economic forecasts have changed highlights the value of diversification across asset classes. A portfolio with strategic allocations to both growth assets and traditional stores of value provides protection against policy uncertainty.

The dramatic reversal in Wall Street's economic outlook serves as a powerful reminder that conditions can change rapidly.

Maintaining balance between growth opportunities and wealth preservation remains a prudent approach in this environment.

Watching the markets for you,

The Wealth Protection Research Team