S&P 500 will sink as Trump’s tariffs hit earnings, Goldman’s Kostin warns

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S&P 500 will sink as Trump’s tariffs hit earnings, Goldman’s Kostin warns

general :: 8hrs ago :: source - bloomberg

By Sagarika Jaisinghani

(Bloomberg) — There’s a risk of a 5% slump in US stocks over the coming months as the latest round of tariffs by the Trump administration crimp earnings forecasts, according to Goldman Sachs Group Inc. (GS) strategists.

(Yahoo finance)

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US President Donald Trump has announced levies of 25% on imports from Mexico and Canada, which will take effect on Tuesday, barring a last-minute deal. China is due to be hit with a 10% levy, while Trump also reiterated a warning to the European Union that tariffs “will definitely happen.”

“These announcements have come as a shock to many investors who expected tariffs would only be imposed if trade negotiations failed,” Goldman strategist David Kostin wrote in a note. “Our economists describe the outlook as unclear but believe there is a substantial probability that the tariffs on Canada and Mexico will be temporary.”

Kostin said that if sustained, the latest tariffs would reduce his S&P 500 (^GSPC) earnings forecasts by about 2% to 3%, not accounting for the impact from further tightening in financial conditions or changes in consumer and corporate behavior. He also warned the S&P 500’s fair value could slump about 5% over the near term due to the hit to both earnings and equity valuations.

Kostin was among the more cautious voices on US stocks in early 2024, before boosting his year-end target several times over the year to catch up to the S&P 500’s rally. For end-2025, the strategist has set out a target of 6,500 points — implying gains of about 8% from Friday’s close.

While the benchmark advanced 2.7% in January, investor sentiment was hurt by worries that Trump’s policies would prove inflationary. Technology stocks were also roiled by concerns that the US may not remain a leader in artificial intelligence innovation.

Global stock markets slumped Monday on worries that the latest tariff moves could result in a full-blown trade war.

All eyes have been on the fourth-quarter reporting season for clues on how Corporate America is preparing for Trump’s protectionist agenda. Although it’s still early days, tariffs are already dominating post-earnings conference calls.

Morgan Stanley (MS) strategist Michael Wilson — among the most notable bearish voices on stocks until mid-2024 — said equity markets had so far been sanguine about the possibility of sustained levies, but that view “is likely to be tested the longer these tariffs stay on.”

At RBC Capital Markets, strategist Lori Calvasina also warned the possibility of a 5% to 10% drawdown in the S&P 500 has increased following the tariff announcements, amid high investor exposure and elevated equity valuations.