Here's what could go right for stocks after a brutal tariff-fueled wipeout
March 14, 2025
The
stock market
has been badly hurt by President Donald Trump's trade war so far, but one Wall Street research firm says there are potential catalysts on the horizon that could help turn the situation around for investors.
Strategists at BCA Research said they see a handful of "upside scenarios" that could restart the rally. Though the scenarios may all be longshots, they're all plausible — and could lead to the major indexes climbing back to all-time-highs, Peter Berezin, the chief global strategist at the firm, said.
"We continue to maintain a bearish view on equities on the grounds that the US will likely enter a recession this year," Berezin said. "All that said, despite our bearish predisposition towards stocks, we are open-minded to anything that could challenge our thesis."
Here are five things the firm thinks could spark a turnaround for the market.
1. Markets successfully push back on Trump's tariff plan
Trump used the stock market to gauge the success of his presidency during his first term, though he's less focused on the market now. However, the president could be disciplined by markets and soften his
trade policy
as the decline in stocks becomes too steep to ignore.
That dynamic hasn't played out so far. Berezin pointed to instances where Trump's team has communicated that the president is no longer using the
stock market
as a barometer for his success.
Last weekend, Trump also acknowledged that the economy was going through a "
period of transition
" after his latest round of tariffs, which suggested to markets that the president is okay with some volatility for now. On Thursday, Treasury Secretary Scott Bessent reiterated the administration's view that it will tolerate market volatility as it pursues its policy goals.
"Our strong suspicion is that the tolerance among Americans for economic pain is very low, especially in the case where the pain seems self-inflicted. This suggests that Trump will back down," Berezin said.
2. Bond investors don't push back against Trump's tax cuts
Markets have been concerned that bond investors could stage a big sell-off in a
revolt
against Trump's plan to extend his
2017 tax cuts
. That would send yields spiking toward a level that could hurt stocks.
There's a chance that doesn't happen though, which would be positive for equities, BCA Research said.
The yield on the
10-year US Treasury bond
, an indicator of long-term interest rate expectations in the economy, spiked as high as 4.8% in early January — one sign that investors anticipated less demand for the US debt, which could be due to concerns about an unsustainable fiscal situation.
Yields have since declined, a sign that those worries have abated for now. The 10-year yield traded around 4.3% on Friday.
"Investors should monitor Treasury term premia to gauge whether risk premia on bonds are rising to dangerous levels. So far, that has not happened," Berezin said.
3. Europe gets a growth boost
Fiscal stimulus and structural reforms in Europe could end up boosting growth abroad — something that could be a positive for US markets as well.
"There is significant scope for gains from knocking down internal barriers to trade. This is true in the European Union. It is also true in countries such as Canada," Berezin said, pointing to estimates that removing trade barriers impacting Canada could raise GDP by as much as 8% in the nation.
European stocks
have already done well so far this year. The
EURO STOXX 50 Index
is up 9% since the start of January, outperforming the S&P 500, which is down 5% year-to-date.
4. Energy prices drop on increased oil production
Oil prices
are already depressed but they could fall further as a result of Trump's plan to boost US energy production. When prices slump as the result of increased supply, that has traditionally been a positive signal for stocks, Berezin said.
Things already look positive on the production side. OPEC+ has said it would wind back some of its production curbs starting in April of this year, and Trump, who declared a
national energy emergency
on his first day in office, has said he would pour more resources into US energy infrastructure.
Oil prices have declined since the start of the year.
Brent crude
, the international benchmark, traded around $70 a barrel on Friday, down from a peak of $82 a barrel earlier in the year.
5. AI productivity gains end up being larger than anticipated
AI could end up
boosting productivity
way more than expected, which would be be a boon for the US economy and markets, the firm said.
BCA Research estimated that growth could scale anywhere from 30 to 100 times as a result of AI. That's similar to what the US economy saw during the agricultural and industrial revolutions, it noted.
Still, the firm noted that productivity gains could take a while to show up in the economy. And while the US is in the midst of an AI investment boom, there are depreciating returns on those investments, which could pose a risk to investors.
