Tariff uncertainty has likely not peaked yet, JPMorgan warns

Investing.com -- JPMorgan analysts cautioned that ongoing tariff uncertainty remains a significant risk for markets, particularly in the Eurozone. 

“Tariff uncertainty has likely not peaked yet, with Eurozone staying sensitive to this,” the firm stated, warning that recent economic strength could have been artificially boosted by “front-loading of orders ahead of the tariffs, with payback likely.”

JPMorgan’s economists have revised their outlook for the region, noting that Germany’s newly announced fiscal stimulus is a “big deal” and has prompted a 1% upgrade in German GDP growth projections for 2026. 

However, they also acknowledge that “the big question mark is over the timing of stimulus delivery, as historically Eurozone tended to underwhelm in this regard.”

The firm is now neutralizing its long-standing preference for U.S. equities, citing “less US exceptionalism” and a more favorable international backdrop. 

While the Eurozone has performed well this year, JPMorgan (NYSE:JPM) warns that “short term looks overbought,” noting that equity valuations have risen to a “15% premium to historical” levels, which could be further pressured if bond yields continue to rise.

The broader market is said to face challenges, with JPMorgan seeing signs of an “activity air pocket building,” which could manifest in weaker Q2 labor data.

“The PMI improvement that happened around the turn of the year could have been induced by front-loading of orders ahead of the tariffs, with payback likely,” the analysts wrote.

Despite these risks, JPMorgan remains bullish on certain sectors, stating that “the fiscal news is positive for Construction, Cap Goods and Banks,” while remaining cautious on Energy and China-related trades such as Autos and Semiconductors. 

However, the firm suggests that investors should wait until the economic “air pocket” passes before adding to positions in these areas.