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On Monday, Bank of America (BofA) revised its target for the S&P 500 index, reducing it to 5600 from a previous range of 4000 to 7000. The adjustment comes in response to escalating trade tensions between the United States and several of its major trading partners.
The BofA analysts highlighted the significant impact of these trade disputes on corporate earnings. They noted that since April 2, the implementation of US tariffs on Chinese goods, coupled with China’s retaliatory measures affecting 34% of all US exports to the country, could slash the operating income of S&P 500 companies by approximately 9%. Additionally, tariffs on Canadian goods and Canada’s countermeasures are expected to further reduce earnings by about 1%.
The European Union has also signaled its intention to implement countermeasures, which are likely to exert additional pressure on the earnings of companies within the index. In light of these developments, BofA anticipates that the S&P 500 earnings per share (EPS) for 2025 will need to be revised downward. The firm is currently assuming a baseline of flat growth compared to the current rate, which would place 2025 EPS at around $250.
BofA’s updated target framework takes into account a lower anticipated level for the S&P 500, which affects return models, as well as a higher discount rate applied to future earnings. This recalibration reflects the firm’s expectation of a more challenging environment for US equities in the face of ongoing trade disputes and their repercussions on global commerce.
Investors are advised to stay tuned for the upcoming Q1 earnings season, which will provide further insights into the impact of these trade measures on corporate performance and could potentially lead to additional revisions of market forecasts. InvestingPro subscribers can access additional insights, including 7 more exclusive ProTips and comprehensive valuation metrics to navigate this challenging market environment.
In other recent news, Bank of America (BofA) has revised its target for the S&P 500 index to 5600, highlighting the impact of tariffs on earnings. The firm expects a decline in operating income due to US tariffs on China and countermeasures from other countries, leading to a potential decrease in earnings per share (EPS) for 2025. Meanwhile, Goldman Sachs has adjusted its economic forecasts, predicting an increase in the average US tariff rate to 15 percentage points by 2025, and has lowered its growth projections for the US and Euro area. The firm also revised its S&P 500 targets, now anticipating the index to reach approximately 5300 in the short term and 5900 in a year, with EPS estimates for 2025 and 2026 set at $253 and $269, respectively. Additionally, BofA analysts have noted an increase in short positions on the S&P 500 and NASDAQ-100 indexes as a significant tariff deadline approaches. These developments are closely watched by investors as they assess the ongoing impact of international trade policies on corporate profitability.
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