The negative effects of the U.S.-China trade war on the U.S. market have been clear for some time. But a new development is making the dispute all the more troublesome for U.S. stocks.

Goldman Sachs just downgraded several enterprise software stocks, as the analysts expect business spend on those services to deteriorate significantly. The bank specifically cited the continuing -- and potentially worsening -- trade war as the culprit for the potentially lower revenue and earnings.

U.S. President Donald Trump and Chinese leader Xi Jinping met Thursday to discuss trade, an event much anticipated by U.S. investors.

All three major indices rose considerably Thursday, on optimism that a trade deal might be reached. But if no deal gets done, October and December tariffs on Chinese goods coming into the U.S. are likely to be implemented.

Enterprise Software Downgrades

Goldman analyst Rod Hall downgraded NetApp (NTAP - Get Report) , Hewlett-Packard (HPQ - Get Report) and Cisco (CSCO - Get Report) to sell, sell and neutral, respectively. He lowered his price targets on all three stocks, to $45 a share for NetApp (suggesting 10% downside), $14 for Hewlett-Packard (12.8% downside) and $48 for Cisco. NetApp fell as much as 3.3%, Hewlett-Packard 2% and Cisco 2%.

For Cisco specifically, Hall's research shows that Cisco's enterprise orders fell roughly 3% in June 2019 year over year. Those orders rose about 15% in September 2018 and consistently dropped off throughout the period.

"We are taking a more cautious view of enterprise spending and particularly large enterprise-exposed companies in our coverage as we look into late 2019 and early 2020," Hall wrote in his note out Wednesday evening.

"Our September VAR survey published earlier this week suggests across the board deterioration in enterprise demand trends with the exception of small and medium businesses."

Hall added that executives of companies providing these services, including Dell (DELL) , which he did not downgrade, have recently issued negative commentary to him and other analysts around software demand from customers.

The culprit: the trade war.

"Ongoing weakness in large enterprise spending is largely a function of business confidence given uncertainty around the trade situation and should therefore correct when business leaders gain confidence in a trade resolution," Hall wrote.

In short, companies are highly uncertain about the direction of tariffs, and therefore demand. With potentially weak demand for goods and services, companies will invest and hire less, and now they'll spend less on software.

These companies are largely hardware and software companies, but they all have software revenue segments that comprise a significant portion of their total businesses.

NetApp's software revenue is about 76% of its total revenue. Hewlett-Packard's revenue breakdown is less clear, but analysts are expecting $38.5 billion in revenue for 2019 from its personal systems group. Cisco's infrastructure platforms service is expected to account for more than half the company's 2019 revenue. Dell is expected to pull in roughly half its 2019 revenue from its client solutions group.

These stocks have underperformed the broader market in 2019. NetApp is down 17.5% year-to-date, with Hewlett-Packard down 22% and Dell up just 4%. Cisco, which is exposed to secular growth trends such as 5G, is up, but just 7.2%.

Why This Is Ominous

Many would expect that companies will reduce capital expenditures and investments in capital goods in the face of the trade war. And that has happened, as the macro data has shown. 

But now with businesses spending far less on software, one has to wonder just how much economic growth the trade war could cut off. 

Meanwhile, the S&P 500 is up almost 17% year-to-date and many economists see an increased risk of a 2020 recession, compared with estimates from a few months ago.