Tariffs Get Real: What’s Priced in—and What Isn’t?

The following article first appeared in the Insights section of J.P. Morgan Private Bank’s website. It is reposted here with permission.

---

Is this the point where tariffs bite?

That’s what investors seemed to be asking last week, as new trade deals were inked, U.S. data softened, and questions of political interference crept further into the mix.

The S&P 500 had its worst week since May, short-term yields dropped, and volatility surged. To us, that signals a market that’s recalibrating—not panicking.

In this week’s note: we’ll explore where tariffs stand, how the economy is responding, what markets are pricing in, and how to position through it all.

Where Things Stand Now

Last week cemented a series of major trade deals: the EU agreed to a 15% tariff on most goods, along with $750 billion in energy imports and $600 billion in U.S. investments.

South Korea committed to a $350 billion investment fund. Other economies saw higher tariffs: India at 25%, Switzerland at 39%, Taiwan at 20%, and Canada rising from 25% to 35%. Mexico received another 90-day extension, holding at 25% for now.

Meanwhile, sector-specific tariffs—especially on chips and pharma—could arrive within weeks. Russia remains a wildcard, with Trump threatening to target both Moscow and buyers of its energy.

New Tariff Rates: Top 10 Connecticut Importers

Country	2024 Imports	Aug. 7, 2025 Tariff Rate
Canada	$5.7 billion	35%*
Mexico	$3.6 billion	25%**
Germany	$1.6 billion	15%
Netherlands	$1.4 billion	15%
China	$1.3 billion	30%***
United Kingdom	$886 million	10%
Italy	$583 million	10%
Vietnam	$535 million	20%
Switzerland	$520 million	39%
France	$435 million	15%

*Applies only to goods not covered by the 2020 U.S.-Canada-Mexico Agreement (exempts an estimated 85% of all imports from Canada from new tariff rate).
**Delayed for 90 days. Applies only to goods not covered by the USCMA (exempts an estimated 84% of all imports from Mexico from new tariff rate).
***Postponed until Nov. 9, 2025 pending further negotiations.
Sources: U.S. International Trade Administration; Federal Register.

In all, the moves weren’t a big surprise, and should help reduce uncertainty.

But, the reality seems to be setting in: U.S. tariffs now look likely to settle in the 15%–20% range. That’s higher than initially expected and represents a larger “tax” on the U.S. economy—one of the largest in modern history.

The debate now isn’t about whether tariffs matter—but how.

How Healthy Is the Economy?

The U.S. economic engine is still running—it’s just no longer at full throttle.

The July jobs report was a letdown, with only 73,000 new hires—the weakest in over a year. Revisions for May and June dragged the three-month average down to 35,000, signalling a sharp slowdown. The unemployment rate also edged up from 4.1% to 4.2%.

Meanwhile, inflation questions are heating up.

So far, tariff costs have been absorbed across supply chains, with just 40% reaching consumers—far below levels seen during the 2018-19 trade war. Part of that has been thanks to inventories built up by front-loading, but that cushion can only go so far.

We are starting to see goods inflation climbing again, with the potential to push overall inflation above 3% by year-end, before easing as the one-off level shift rolls through the data. Services inflation is still cooling as demand and wage growth slow.

That puts the Fed in a familiar bind: cut rates too soon and risk reigniting inflation, or wait too long and risk stalling growth.

On balance, we see the Fed cutting 50bps in late 2025 and another 50bps in 2026, likely starting in September.

We’re on alert for anything that might tie the Fed’s hands, like inflation expectations de-anchoring or a labour market squeeze from dwindling immigration. But for now, those risks seem at bay.

What Are Markets Pricing in?

Markets look to be in recalibration mode, not panic. We think they’re already factoring in a slowdown. Consider that:

• Since April, consensus Q4 U.S. GDP expectations have dropped by about one percentage point.
• Earnings expectations for the equal-weight S&P 500 have fallen around 6%.
• Consumer discretionary and small caps have taken the biggest hits, while tech and financials are holding steady or improving.

In other words, markets, as forward-looking machines, had already been shifting gears ahead of actual earnings reports.

The advantage of low expectations is that they set a low bar to surpass. With three-quarters of the reporting season complete, over 80% of S&P 500 companies have exceeded Q2 earnings expectations, well above the 10-year average of 75%.

Corporate commentary is echoing the shift. Earnings calls show firms are actively managing tariff exposure through price increases or cost cuts. That means tighter margins, slower hiring, and more goods inflation—exactly what’s showing up in the data.

In turn, investors are becoming more selective. Small caps and consumer-facing companies, with limited pricing power and higher import exposure, have lagged. In contrast, larger companies with global reach and structural advantages are holding strong. We haven’t seen the usual signs of froth:

• Unprofitable companies aren’t leading the charge.
• The options market remains cautious, with elevated implied volatility.
• Valuations are high but still aligned with earnings.

In this environment, we favour large caps over small caps and prioritise quality over leverage. Scale, flexibility, and structural strength look to be clear advantages, and the market is rewarding them.

How Much Will Politics Matter for Policy?

Political noise doesn’t change the fundamentals, but it can stir up volatility.

President Trump’s bold decision to fire Bureau of Labor Statistics chief Erika McEntarfer after last week’s weak jobs data has raised concerns about data integrity and pressure on independent institutions like the Fed.

While there’s no evidence of data tampering (now or otherwise), such headlines could speak investor doubt.

Trump’s decision to fire the head of the Bureau of Labor Statistics has raised concerns about data integrity.

Meanwhile, challenges to the administration’s tariff authority are advancing. Even if tariffs stick, legal proceedings add noise, and any adverse ruling could shake up tariff implementation.

Finally, last week also saw Trump officially sign the One Big Beautiful Bill Act, extending 2017 tax cuts and adding incentives to boost consumer demand and business investment.

It also locks in 6%+ budget deficits for the foreseeable future. While not market-moving alone, it’s notable that demand for longer-dated Treasuries has been weakening.

Overall, the further noise could add to volatility, even if it doesn’t change the macro path, emphasising the need for more intentional portfolio choices.

What It Means for You

We believe it’s a time to act, not overreact. The headlines are loud—tariffs, soft jobs data, political tension—but the fundamentals remain solid.

We expect a soft landing for growth, a manageable rise in inflation, and rate cuts starting later this year. Above all, we anticipate resilient markets, even if accompanied by volatility.

Here’s how we’re positioning:

• Trim excess cash. With cuts likely ahead, reinvestment risk is rising. Begin rotating into high-conviction assets.
• Favour large caps over small caps. Bigger firms have the pricing power, global exposure, and flexibility to manage through cost pressures.
• Stick with secular winners. We remain overweight tech and financials, and see long-term opportunity in defence and energy infrastructure.
• Watch duration risk. With deficits widening and long-end volatility climbing, manage Treasury exposure with care.
• Consider currency exposure. FX has mattered meaningfully for returns in 2025, and we expect that to continue.

Bottom line: You probably don’t need a portfolio overhaul, but consider refining your exposure. In a more volatile, policy-sensitive world, discipline and selectivity are your edge.

---

About the author: Madison Faller is a global investment strategist with J.P. Morgan Private Bank, responsible for developing and communicating the firm’s economic and market views and investment strategies to advisors and clients.