Today’s news revolves around Trump's presidential moves as he announced tariff plans and Wall Street predictions. Wall Street has predicted a hit to S&P 500 earnings due to Donald Trump’s tariff plans.
Tariffs To Impact S&P Earnings
A trade war between the US and its neighbours has begun and it is sure to impact S&P earnings and EPS fallout as Donald Trump has announced tariff plans on US North American trading partners and has imposed a 10% duty on Chinese products.
Trump’s tariff plans will also impact the S&P 500 earnings of other banks on Wall Street. Goldman Sachs wrote in a note that Trump's protectionism could cut EPS by 2%-3%, as a five percentage point increase in the tariff rate typically lowers S&P earnings by 1%-2% leading to the stock market down 5%.
Barclays predicts a 2.8% decline in EPS amidst a trade war between the US and its continental trading partners.
China and Mexico Retaliation
Trump’s tariff plans announcement has sparked retaliation from China and Mexico. According to Bank of America, if Mexico and Canada counterattack with tariffs, S&P 500 firms could see an 8% hit to earnings.
Analysts estimate that 25% tariffs on Canada and Mexico, plus 10% incremental tariffs on China, could translate to a 2% hit to earnings per share (EPS). However, if the situation rises to bilateral tariffs, the hit to EPS could be as high as 8%.
Sectors Most at Risk with the Tariff Plans
Many discretionary and materials sectors that found their production presence in Mexico and Canada are at a greater risk of potential double-digit earnings fallout.
US Earnings Otherwise Strong
Amidst Trumps’s tariff plans and despite the potential risks, US earnings are coming in strong, with fourth-quarter results up 12% year-over-year. Wall Street sentiment is also peaking, with mentions of industry "bottoms" soaring - a signal that depressed sectors are on their way to earnings recovery.
"Our Corporate Sentiment Score soared to the highest level in its history (since 2004). This indicator has led S&P EPS YoY (69% correlation with a quarter lead), suggesting a continued upcycle in earnings," Analysts wrote.