As markets close out a brutal quarter, investors should prepare for another three months of pain ahead.

Inflation and recession fears have intnsified under President Donald Trump’s tariff campaign, sending major indexes into correction territory through March. But that’s not all. Consumer sentiment has dropped to multi-year lows and CEO confidence is spiraling as planning for the future becomes more difficult.

With the second quarter coming up, analysts are turning more bearish.

“The expected fallout from Trump 2.0’s Reign of Tariffs undercuts our former bullishness and dims the prospects of our base-case Roaring 2020s scenario for now,” veteran analyst Ed Yardeni wrote in a Monday note. He lowered his S&P 500 year-end target to 6,100.

At the same time, Goldman Sachs cut its three-month target for the index to 5,300, a possible 5% drop from current levels.

For worried investors, Deutsche Bank flagged three risks to watch in the coming quarter.

How will countries react to US tariffs?

Trump has long referred to April 2nd as “Liberation Day,” when Washington unleashes reciprocal duties on countries it believes trade unfairly with the US. The magnitude of the tariffs has been a prime focus for the market, causing the S&P 500 to both rally and crash in the past week amid changes in the narrative.

Banks, such as Goldman, have warned that tariff rates will exceed the market’s expectations given their purpose as a negotiating tool. More aggressive scenarios would see Trump raise them higher if countries retaliate with duties on US products. A trade war “escalation spiral” is the key risk, Deutsche said.

Yet, there’s also an upside if the tariff policies become easier to predict.

“A recovery doesn’t necessarily require the tariffs to be removed, just as it didn’t require inflation to be back at target in late-2022. Instead, it would require a greater sense of certainty such that investors have a better idea as to what the future holds,” Deutsche note.

Will consumers weaken?

Consumer sentiment data has fallen to a four-year low, but hard data has yet to buckle. 2025 non-farm payrolls figures hold strong, weekly jobless claims show no signs of deterioration.

Last week, Bank of America outlined additional bright spots, such as robust card spending and rising air traffic data.

However, if low sentiment were to trigger a consumer spending pullback, recessionary angst could produce a fresh blow to markets.

According to Yardeni, such a scenario could be a third or fourth quarter problem, as tariffs push US shoppers to scramble and panic-buy products. Warm weather should also boost consumption, setting the economy up for weakness once consumers re-trench later in the year.

As for the second quarter, analysts will be watching March payroll data, set to publish on April 4th. wrote. A reading below 100,000 jobs would indicate a hard landing and drive the S&P to new lows in April, wrote BofA strategist Michael Hartnett.

Is inflation here to stay?

Slight upside on last week’s personal consumptions expenditures index was enough to roil markets ahead of the tariff date.

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CFO confidence is slipping that inflation will stay down, Yardeni noted, and he raised his PCED inflation outlook to 3.0% to 4.0% for this year.

This adds weight to the Federal Reserve’s decision-making in the coming months. Slower growth and higher inflation are the basis for stagflation, one of the most difficult problems a central bank can face.

But there is a silver lining:

“One potential advantage now is that because market-based inflation expectations have risen considerably, it’s now easier to get a downside surprise, because the benchmark has risen,” Deutsche noted. “And at several points over the last couple of years, downside inflation surprises have led to a huge equity rally as investors price in more central bank rate cuts.”