Reciprocal tariffs could hit the S&P 500’s (SP500) operating income by 32%, according to Bank of America.

“There is no tariff playbook,” wrote Savita Subramanian, head of U.S. Equity Strategy & U.S. Quantitative Strategy, in a note. “If trading partners respond with equal retaliatory force, reciprocal tariffs could hit current S&P 500 operating income by 32%.”

The cost of inflation from imported goods – even without retaliation – cut slash operating income of S&P 500 (SP500) by 5%.

In addition, “prolonged negotiations could stall activity spiraling into a recession,” she said. “. Calls to boycott U.S. goods could ramp further. But pricing power and currency moves can mollify tariff impacts.”

Small caps (IWM) would be hit the hardest even without retaliatory tariffs, with their operating income falling 22%, and possibly rising to 100% under bilateral tariffs, BofA analysts estimate.

Mid-cap stocks (SP400) could see their operating income falling 11%, and about 60% under bilateral tariffs, analysts said.

“It’s the unknown unknowns that can lead to severe confidence shocks,” Subramanian said. “Shocks that shift goals from generating alpha to staying liquid and ‘getting to the other side.'"

"If stagflation is the enemy, companies helped by inflation and higher nominal rates, with less global exposure, stable earnings and dividends may be the safer route within the S&P 500 (SP500)," she added. "This bolsters our preference for large-cap value (IVE), (SPYV).”