A growing chorus of prominent market strategists is warning that a U.S. recession may be more likely than consensus forecasts suggest — and they’re pointing to aggressive trade policy as the catalyst. Wealth advisors and RIAs navigating client portfolios through this environment will need to evaluate these scenarios carefully, as downside risks tied to tariffs and global retaliation escalate.
With Donald Trump unveiling sweeping reciprocal tariffs in early April, concerns over a policy-induced economic slowdown have intensified. A recent Bank of America survey of global fund managers found that 80% now view the escalating trade war as the most significant tail risk to financial markets in 2025. Betting markets are reflecting that shift, pricing in a higher likelihood of recession this year. Several well-regarded Wall Street economists have detailed how they expect the downturn to unfold—and what financial professionals should monitor in coming quarters.
Mark Zandi, Chief Economist, Moody’s Analytics Recession Probability: Greater than 50%
Zandi believes that the global economy now faces a better-than-even chance of slipping into recession, driven primarily by the intensifying tariff regime. Speaking on The David Lin Report, Zandi highlighted the central role of trade policy in shaping macroeconomic outcomes for the year ahead.
“It all revolves around trade policy,” Zandi said. “If the administration can take an offramp—de-escalate tariffs and unwind the trade war—we might still avoid a recession. But the longer this persists, the more entrenched the damage becomes.”
Recession Transmission Mechanism:
Zandi sees the downturn starting in industrial sectors directly exposed to trade frictions—namely manufacturing, transportation, distribution, and agriculture. As tariffs raise input costs and disrupt supply chains, output in these sectors could contract quickly. This industrial weakness would then spill into consumer discretionary spending, particularly in areas like entertainment, recreation, and hospitality.
He also noted the potential for equity markets to reflect this deterioration:
If a recession unfolds, the S&P 500 could drop another 10% from levels seen after the initial tariff announcements.
This would mark a decline of 20–30% from the February market highs.
If policymakers reverse course and tensions cool, Zandi suggests equities may have already bottomed—but that outcome is increasingly uncertain. “Buckle up. It’s going to be a difficult 2025, one way or another,” he warned.
JPMorgan
Recession Probability: 60%
JPMorgan analysts increased their recession probability from 40% to 60% following the tariff announcements, citing a material shift in U.S. trade posture. In a client note issued in April, the bank called the current U.S. trade agenda “decisively less business-friendly” than previously anticipated.
While negotiations with trading partners continue, the effective U.S. tariff rate could climb to 24%, amounting to a tax equivalent of 2.4% of GDP. JPMorgan’s economists argue that, if sustained, these policies will likely trigger a U.S. and possibly global recession.
Economic Fallout Scenario:
The tariffs would constitute the largest tax hike on American consumers since World War II, the bank’s strategists wrote. Retaliatory measures by trading partners could amplify the economic shock. JPMorgan expects:
A sharp deterioration in business confidence.
Significant disruption to cross-border supply chains.
Heightened costs for imported goods and intermediate inputs.
Chief U.S. economist Michael Feroli forecasts that a mild two-quarter recession could begin in the second half of 2025. According to his April estimates:
Real GDP may contract by 1% in Q3 and by 0.5% in Q4.
The unemployment rate could rise to 5.3%, up from current levels below 4%.
Q1 GDP already posted a -0.3% reading, the first contraction in three years.
For advisors, JPMorgan’s view underscores the potential for a broad-based demand shock if consumer purchasing power and corporate margins erode under tariff pressures.
Torsten Sløk, Chief Economist, Apollo Global Management Recession Probability: 90%
Sløk presents the most aggressive recession forecast of the group, assigning a 90% probability that the U.S. economy enters a recession by the end of 2025. His outlook centers on the disproportionate impact of tariffs on small and mid-sized businesses—segments that collectively form the backbone of U.S. employment and investment.
“Small businesses, which lack the working capital to absorb new tariffs, will be forced to cancel orders, pause operations, and in many cases shut down entirely,” Sløk said in a client memo. “This is not a cyclical slowdown—it’s a systemic shock to the operating environment of Main Street America.”
Expected Recession Pathway:
Apollo’s modeling suggests tariffs could shave as much as four percentage points off U.S. GDP. Sløk notes this is based on analogs from the 2018–2019 tariff cycles under the prior Trump administration. But this time, the scale is larger and the starting point more fragile.
Sløk’s anticipated timeline includes:
Mid-May: Container traffic from China to U.S. ports falls dramatically due to trade restrictions and rising costs.
Late May: A significant decline in trucking demand as inventory pipelines dry up.
June and beyond: Visible product shortages in consumer-facing retail, triggering layoffs and bankruptcies among generational businesses that lack pricing power or financial flexibility.
His note explicitly warns that consumer confidence and hiring trends could deteriorate faster than markets currently expect.
Strategic Implications for RIAs and Wealth Managers For wealth advisors and RIAs, these increasingly aligned bearish forecasts highlight several key considerations for client portfolios and financial planning strategies in 2025:
Stress-Test Client Allocations:
Advisors should model scenarios in which equity markets retrace another 20–30% from their peaks, especially in portfolios with concentrated risk exposure in cyclicals or consumer discretionary sectors.
Revisit Fixed Income Positioning:
If economic data deteriorates and the Fed signals policy easing, intermediate-duration Treasuries and municipal bonds could provide ballast. Conversely, credit spreads on high-yield and small-cap debt may widen under stress, warranting closer review.
Mitigate Exposure to Tariff-Sensitive Sectors:
Portfolios overweight in industrials, retailers, or manufacturers reliant on global supply chains may require rebalancing or tactical hedging, particularly as tariff-related earnings revisions continue.
Prepare for Increased Volatility and Liquidity Needs: In a downturn scenario, client behavior may shift quickly—from risk aversion to liquidity demand. Proactive cash management strategies, including high-quality short-term vehicles, can enhance readiness.
Monitor Labor Market and Sentiment Indicators:
With consensus expectations lagging recession probabilities among economists, real-time indicators such as initial jobless claims, ISM manufacturing data, and consumer sentiment surveys will be crucial for gauging recession onset.
Client Communication and Planning Adjustments:
Reassuring clients with financial plans that incorporate market cycles, tax efficiency, and income sustainability remains critical. Bearish headlines may drive fear, but structured portfolio conversations grounded in long-term principles can enhance client retention.
Conclusion
While not all economists agree on the timing or severity of a potential recession in 2025, a common thread among bearish forecasters is the disruptive role of escalating tariffs. For wealth managers, translating these macroeconomic signals into proactive client engagement and risk-aligned portfolio strategies will be paramount in the months ahead.
Whether the economy ultimately avoids or enters a downturn, the path forward is likely to be volatile and policy-dependent. As Moody’s Zandi put it: “Buckle up.”
