The biggest hurdle facing stocks is trade uncertainty, according to new analysis from JPMorgan strategists.

While they say the effect of existing tariffs on companies has been limited by the recent tax cuts, the next phase of tariffs may be more threatening.

“We believe the next round of tariffs that the Trump administration is threatening — Mexico 5% and China Phase III — could substantially increase the risk of pushing the U.S. business and profit cycle into an outright contraction,” the analysts wrote. “We estimate the first-order impact alone of new China/Mexico tariffs will be an additional hit of ~$5 (cumulative ~$10) to S&P 500 EPS over one year.”

JPMorgan expects executives to discuss the effects of additional tariffs on upcoming earnings calls. Second quarter earnings season is set to start in July.

With the tariff worries lurking in the background, the market is expecting the Federal Reserve to step in and cut interest rates — even after several years of consistent rate hikes.

The market is pricing in a 32.5% chance of a cut at the Fed’s meeting later this month, according to CME data, and substantially higher chances of a rate cut during the Fed’s July, September and December meetings.

There is worry that a rate cut may not be enough to offset the negative offshoots from the tariffs.

“Additional monetary easing (JPM Economics expects two rate cuts later this year) could buffer some of the downside, but there is a risk that it will be insufficient for the most vulnerable segments of the economy, small businesses and low-income households,” the analysts wrote.

Still, JPMorgan strategists see the Trump administration eventually adopting a tariff policy that “will not jeopardize the business cycle and likelihood of re-election going into 2020.”

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

More from Scott:

• Why Trump should be worried about the stock market selloff

• What the plunging 10-year Treasury yield says about the economy and stock market

• Why one top strategist is bullish on tech even with lingering trade worries

• Money managers are bracing for a 'sharp fall'

• Retail investors have missed the rally — but that could be bullish

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and reddit.