Investors Turn Defensive as BCA Sees Tariff Pain and Recession Risks

Investor sentiment has soured, with recession and stagflation fears on the rise, according to a new BCA Research report. Client polls reveal few are “willing to buy the dip,” instead favoring defensive positioning amid policy uncertainty.

Key Takeaways from BCA Research

• Policy Uncertainty Spurs Caution

  • U.S.-China trade tensions and fresh tariff levies are undermining confidence.

  • “The new U.S. trade policy is bound to have a meaningful effect on corporate profitability,” BCA warns.

• Sector Vulnerabilities

  • The S&P 500 remains heavily tilted toward goods-producing sectors (Healthcare, Technology, Industrials, Materials).

  • Consumer Discretionary, Industrials, and Materials face the greatest margin squeeze, as they lack pricing power to pass on tariff costs.

• Earnings and Valuation Impact

  • Tariffs are projected to subtract 2 percentage points from S&P 500 net margins.

  • Fair-value multiples are expected to contract to a PE NTM of 17×, down from current levels.

• Guidance Over Backward Results

  • With earnings season approaching, companies are shifting focus to forward guidance.

  • BCA anticipates “an avalanche of downgrades” as firms update Q2 outlooks to reflect tariff headwinds.

What This Means for Investors

With defensive positioning now consensus, equity allocations may favor Utilities, Consumer Staples, and Healthcare—sectors better able to withstand cost pressures. Meanwhile, higher-beta names in Industrials and Materials could face further downside as margin erosion unfolds.

Monitor Sector Valuations in Real Time

To track shifting valuation multiples across key sectors, use the
🔗 Sector PE Ratio Market Overview API
from Financial Modeling Prep.
This API provides up-to-date P/E ratios, helping you identify which sectors' valuations are contracting most sharply under tariff impacts..