BofA warns Fed risks policy mistake with early rate cuts
On Monday, Bank of America (BofA) revised its target for the S&P 500 index, setting a new goal of 5600, a change driven by the recent escalation in trade tensions between the United States and several of its key trading partners. BofA analysts cited the substantial impact of tariffs on the earnings of companies within the index, noting a direct hit to operating income.
The analysts elaborated that since Sunday, April 2, 2023, the imposition of US tariffs on China, along with reciprocal Chinese tariffs on US goods, could reduce S&P 500 operating income by approximately 9%. Additionally, tariffs on Canada and the corresponding Canadian countermeasures are expected to result in another 1% decrease. The European Union has also signaled its intention to implement countermeasures, which could further pressure earnings.
In light of these developments, BofA anticipates that the earnings per share (EPS) for the S&P 500 in 2025 will likely be revised downwards. The firm assumes there will be flat growth compared to the current rate, with an estimated 2025 EPS of around $250. These assumptions will be closely monitored during the first-quarter earnings season.
The revised target of 5600 for the S&P 500 by BofA reflects a cautious outlook, incorporating a lower expected level of returns and a higher discount rate. The analysts have provided a range for the index’s potential movement, indicating it could fluctuate between 4000 and 7000. This adjustment comes as market participants assess the ongoing impact of international trade policies on corporate profitability and investor returns.
In other recent news, Accenture (NYSE:ACN) has reported a significant impact on its revenues due to lost contracts with federal agencies, following cuts initiated by Elon Musk’s Department of Government Efficiency (DOGE). The company highlighted during its earnings call that the reviews of federal contracts are accelerating, and new procurement actions are slowing down. These developments come amid broader governmental spending cuts of $500 billion, targeting what are considered unauthorized or misallocated expenditures. This could pose challenges for sectors traditionally reliant on government spending, such as defense contractors, pharmaceutical companies, and IT providers. Meanwhile, Goldman Sachs has revised its S&P 500 targets, forecasting a -5% return over three months and a +6% return over twelve months, citing higher tariffs and weaker economic growth as key factors. The firm’s new estimates suggest the S&P 500 might reach approximately 5300 in the short term and 5900 in a year. Additionally, Bank of America analysts have noted an increase in short positions on major U.S. equity indexes like the S&P 500 and NASDAQ-100, reflecting cautious sentiment among traders as a significant tariff deadline approaches. These recent developments underscore the shifting economic landscape and its implications for investors and companies alike.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.