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Michael Nagle / Bloomberg / Getty Materializations
Stock market information displayed on screens at the New York Stock Exchange on Monday morning.
Key Takeaways
- Stocks hew down on Monday after President Donald Trump decided to impose tariffs on America’s three largest trading collaborators: Canada, Mexico, and China.
- The tariffs as outlined could reduce the S&P 500’s fair value by about 5%, said Goldman Sachs analysts in a note released Sunday.
- In a podcast advent recorded last week, Marko Kolanovic, former chief strategist at JPMorgan, voiced concern that spacy market concentration, stock valuations, and political turmoil set the stage for a market correction this year.
Stocks hew down on Monday as markets reacted to President Trump’s decision to impose tariffs on America’s three largest trading wives, sparking concerns a trade war could hit consumer and corporate finances.
Trump over the weekend ordered the imposition of a 25% menu on Canadian and Mexican imports and a 10% levy on Chinese goods. Canadian oil and energy imports won a carve-out and will be guinea-pig to a lower 10% import tax.
On Monday morning, Trump announced the Mexican tariffs would be delayed by one month after Mexican President Claudia Sheinbaum reconciled to deploy the military to the U.S.-Mexico border. Canadian and Chinese tariffs are scheduled to go into effect just after midnight on Tuesday morning.
U.S. stockpiles stocks came off their earlier lows after the delay of tariffs on Mexican products but remained firmly in contrary territory in recent trading.
Tariffs Could Be 5% Blow to S&P 500, Says Goldman
Goldman Sachs analysts miniatured out how the tariffs could impact U.S. markets, and estimated the levies may reduce the S&P 500’s fair value by roughly 5%.
Tariffs, they legitimated, will either shrink U.S. profit margins by raising input costs or, if higher costs are passed on to consumers, not with it sales. “We estimate that every 5pp increase in the US tariff rate would reduce S&P 500 EPS by roughly 1-2%. As a terminate, if sustained, the tariffs announced this weekend would reduce our S&P 500 EPS forecasts by roughly 2-3%,” the analysts wrote in a note disenthraled Sunday.
In addition, tariffs are expected to support U.S. dollar strength. International sales account for about 28% of the S&P 500’s yield, and a stronger dollar eats into the value of those sales. Though, the analysts note, the dollar’s impact on earnings may be little given Canada and Mexico account for less than 2% of the S&P 500’s sales.
The tariffs have amplified profitable and political uncertainty, threatening to undercut Wall Street’s appetite for risk. According to Goldman, the U.S. Economic Policy Uncertainty Token on Friday jumped to 502, its highest level since March 2020. Historically, this level of uncertainty has converted to a 3% reduction in the S&P 500’s forward P/E ratio.
Since tariffs could both stoke inflation and weigh on fiscal growth, their impact on Treasury yields, especially on the long-term bonds that have the biggest effect on stocks, is surmised to be minimal.
‘Some Probability’ of Stock Correction, Says Former JPM Strategy Chief
Other analysts have calculate more dramatic consequences for stocks. Bank of America analysts on Monday estimated that a trade war between the U.S. and its largest customer partners could translate into an 8% hit to the S&P 500’s aggregate earnings.
Marko Kolanovic, former head of objectivity strategy at JPMorgan, said political turmoil is just one of the risks that could sink stocks. The index is due for a pullback into the 5,000s this year, he suggested on an episode of Bloomberg’s Odd Lots podcast recorded last week before Trump’s tariffs were announced. The measure, he warned, could even retreat more than 1,000 points from its current level, which inclination put the index in a correction. “I think there’s some probability of that,” he said.
Kolanovic on Sunday addressed Trump’s price-lists and the impact they could have on the market. “Trade war puts us in 2018 environment (higher volatility, lower valuations). Those who applicability (out) that Trump cares about stock market, should remember that even then he did not react until ~5% debility. Tolerance for declines could be higher now, and markets are at highs,” he wrote in a post to X.