CEOs brace for recession even after tariff reprieve boosts markets ...Middle East

By Mary Schlangenstein, Jaewon Kang and Hannah Levitt | Bloomberg

Donald Trump’s 90-day reprieve on some tariffs sent the stock market soaring Wednesday. But the chaos sown by the president’s trade war means corporate America is planning for a recession.

Corporate chiefs from Delta Air Lines to Walmart are warning of a wave of pessimism that’s swamping demand and making it difficult to predict what’s to come. Jamie Dimon, the JPMorgan Chase & Co. chief executive officer, said Wednesday that defaults will rise as the economy worsens. Automakers are offering fresh discounts or pledging to hold prices steady in a bid to lure consumers scared off by talk of tariffs.

Comments from Delta CEO Ed Bastian exemplified the dread. Reminded that last month he had said he didn’t think the US was headed into a recession, Bastian conceded to an interviewer on CNBC that things had changed. “We’re acting as if we’re going into a recession,” he said.

Also see: US and China locked in a faceoff over tariffs and neither wants to blink first

“Whether you’re a corporate manager trying to figure out whether you want to step forward on an investment, whether you’re a bond trader or in the markets trying to allocate capital, or even as a consumer, I think everything has stalled” because of uncertainty tied to Trump’s policies, he told CNBC.

Trump, who came to office on a pledge to bolster economic growth and fortify the US economy, is instead unleashing a wave of panic across markets and businesses as consumers and investors try to make sense of his policies and their impacts.

On Wednesday afternoon, Trump said he would pause higher reciprocal tariffs for 90 days on dozens of trade partners, while raising duties on China to 125%, an about-face that came roughly 13 hours after higher reciprocal duties on 56 nations and the European Union went into effect.

Also see: Oil prices fall, then recover, after news of 90-day tariff pause

It wasn’t immediately clear which nations would receive tariff relief, but stocks soared after the president’s announcement, lifting the S&P 500 Index to its biggest one-day gain since 2020. The benchmark US gauge had been headed to a bear market, approaching a 20% decline from its peak.

When asked whether Americans should believe the reprieve will hold and tamp down fears over heightened uncertainty, Treasury Secretary Scott Bessent said “the only certainty we can provide is that the US is going to negotiate in good faith and we assume that our allies will too.”

Goldman Sachs economists rescinded their forecast for a US recession after the announcement, but for Mike Roach’s business, “the recession has already started.” The cofounder of Portland, Oregon-based apparel company Paloma Clothing said sales have dropped 11% from a year ago, he’s running three discounts at once and is thinking about pulling back on summer hiring.

“By pausing the tariffs today – that’s great for today, the market will go up,” he said. “The reality is, it still leaves us in a very uncertain environment.”

Speaking before the pause on tariffs was announced, Dimon said a recession is one “likely outcome” of the trade turmoil, and while he hasn’t seen a rise in defaults yet, he expects one.

“Fixing these tariff issues and trade issues would be a good thing to do,” Dimon said Wednesday on Fox Business. “If you have rates going up a little bit and inflation is sticky and credit spreads are gapping out, which they’re going to, I think you’ll see more credit problems than people have seen in a long time.”

Walmart, the world’s largest retailer, is prepping for a worsening economy by using its massive footprint to keep prices low and hunt for ways to take market share as tariff-spooked shoppers begin pulling back on spending. The company said Wednesday that it still sees net sales growing 3% to 4% this year, and plans to absorb potential price hikes fueled by the trade war and take a short-term financial hit to keep products affordable.

“The uncertainty and decline in consumer sentiment has led to a little more sales volatility week to week and frankly day to day,” Chief Financial Officer John David Rainey said Wednesday. Walmart is working through how the new tariff environment would affect its operations, he added.

The company is showing “pressure points,” D.A. Davidson & Co. analyst Michael Baker wrote in a research note.

“Walmart’s signal to invest in prices could be a strategy to gain share and grow shares, but could squeeze profit in the near term,” Baker said.

Investors have been dumping bonds of retailers that were already facing headwinds before the tariffs, figuring they’re among the most vulnerable to any economic slowdown. By the end of last week, the amount of US corporate debt classed as distressed had soared by more than 32% since the end of February, according to Bloomberg News’ distressed debt tracker.

Arts and crafts chain Michaels, department store Saks and pet supplies PetSafe were among the companies whose bonds dropped the most last week.

Catalyst Brands, the company that formed through the merger of JCPenney and the operator of retailers including Lucky Brand, Eddie Bauer and Aéropostale, is cutting about 9% of its corporate staff, Bloomberg News reported. That is on top of a 5% cut to corporate roles earlier this year.

Megan Graham, founder of Ries, which sells refillable toiletry bottles online and at Sephora and the Container Store, said she’d love to make her products in the US. But the higher costs of producing domestically, coupled with the potential for lower quality manufacturing for her type of products in the US, mean she’s likely to keep making her items in China.

Greater domestic production would be more feasible if the US helps businesses and manufacturers with subsidies and tax incentives, she added. “Unfortunately, because that’s not happening, it feels like the point of the tariffs is not to help businesses, it’s not to invest more in the US — it is to fill coffers,” Graham said.

The tariffs are fueling a gloomier outlook, with consumers expecting higher prices and spending turning out weaker than expected in February. But the March jobs report showed a labor market that was holding up well ahead of the levies, with monthly gains exceeding all forecasts.

Some retailers are also getting a temporary lift from panic buying as consumers stock up on goods or push forward big purchases in anticipation of higher prices to come from tariffs. Auto dealerships have reported a swarm of shoppers descending on showrooms, concerned higher costs are on the way.

Employees from Apple retailers across the country said stores filled with customers over the weekend — with the shoppers expressing concerns that prices will climb dramatically after the levies are imposed. Most iPhones, Apple’s best-selling and most important product, are manufactured in China.

Apple would have a difficult time shifting production to the US to avoid tariffs, according to Bank of America. The cost of an iPhone “can increase 25% purely on higher labor costs in the U.S.,” and “on top of that, if Apple had to pay reciprocal tariffs to import sub-assemblies into the U.S., we see the total cost of an iPhone increasing 90%+” the bank said in a report.

The latest country-specific tariffs took effect on Wednesday morning. Trump has boosted duties on Chinese goods, prompting the Chinese government to impose an 84% tariff on all imports from the US starting April 10 and deepening a trade war between the world’s largest economies.

Trump said that more than 75 countries had contacted his administration to negotiate on trade barriers and “have not, at my strong suggestion, retaliated in any way, shape, or form.” Trump also said he was raising rates on China to 12% over its refusal to negotiate.

On a flight from Paris to New York this week to test out Air France-KLM’s new premium-class cabins, the carrier’s CEO Ben Smith walked up and down the aisles to chat with customers about how they were feeling about the economy. The company’s first-class customers have so far continued to spend, but the airline is starting to see demand drop in its economy class and has had to adjust prices to make sure seats are filled.

Smith, who compared the market meltdown over the last few weeks with the aftermath of the 9/11 terrorist attacks and Covid, said the fliers he spoke to said that so far, they’re hesitant but hopeful. “It’s wait and see,” he said.

Bloomberg reporters Irene García Pérez, Jonnelle Marte, Gabrielle Coppola, Ryan Vlastelica, Lily Meier, Eliza Ronalds-Hannon, Jeannette Neumann and Josh Eidelson contributed to this report.

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