Investing.com -- UBS warned in a note Tuesday that equity markets may have further to fall as the full impact of tariffs has yet to be priced in—and investors shouldn’t expect a swift intervention from the Federal Reserve.

“We believe the bottom is not yet in,” UBS analysts wrote, modeling two tariff scenarios through 2027.

In the more severe case, where current U.S. tariffs stay in place, including 145% on China, UBS expects the S&P 500 to fall another 13% from April 21 levels.

Even in the more moderate scenario, where China tariffs decline to 60%, the bank sees a further 7% market drop.

UBS expects equities to bottom around the early part of the third quarter of 2025, warning that valuations and earnings will likely deteriorate before then.

“The possibility of seeing two sequentially negative quarters in domestic demand is real,” the firm noted.

While some rebound is projected by the end of 2025, UBS says gains would be modest unless tariffs ease. They believe the S&P 500 could reach 5,500 under the climbdown scenario, but if current tariffs hold, “the market is only likely to recover to levels around which we are presently at.”

Crucially, UBS says a Federal Reserve pivot may come too late to cushion the blow. “A Fed rescue isn’t imminent,” analysts wrote.

Core inflation is expected to remain high, keeping the Fed “reactive, not proactive.” UBS believes rate cuts likely won’t arrive until September at the earliest.

UBS forecasts 0% earnings growth over the next 12 months if current tariffs remain and just 4% if they are scaled back.

It also warned that most market models are overly optimistic, failing to account for how “cost push” inflation from tariffs can hit corporate margins.

Even when cuts begin, UBS cautioned, “following the Fed blindly will not be helpful.”