The uncertainty caused by tariffs could put downward pressure on all manner of corporate activities, from investment to mergers and acquisitions to debt issuance. That is the view of Bank of America’s equity and quantitative strategy team, led by Savita Subramanian. “Perhaps the biggest risk about tariffs is a self-fulfilling slowdown due to corporate paralysis,” the strategist wrote in a note Tuesday. Such a pause was seen in 2018, during President Donald Trump’s first term in office, Subramanian noted. Growing numbers of investors think there is an increased chance the U.S. will soon suffer from stagflation, which is when high inflation is accompanied by only sluggish economic growth, BofA added. Tariffs and deportations are inflationary, while uncertainty and less demand are recessionary. But BofA is unfazed by such concerns. “Investors [are] assigning a 59% probability to stagflation risk despite the fact that stagflation has occurred ~5% of the time historically,” Subramanian said. Bank of America forecasts Trump policies will add no more than 0.1% to core PCE inflation, while the hit to gross domestic product will be even smaller. As a result of the tariff headwinds, Subramanian remains underweight in her recommendation on tech stocks, which she says are highly exposed to China as well as globally exposed supply chains. A short- to medium-term beneficiary of the Trump tariffs may be U.S. steel companies, Subramanian noted. “Our U.S. steel industry coverage should benefit from higher prices as steel sold to U.S. based clients is mostly produced in the U.S.,” she added. Nonetheless, higher domestic steel prices could also lead to downward pressure on demand, which would eventually hurt prices, she added. — CNBC’s Michael Bloom contributed to this report.
