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On Thursday, Deutsche Bank (ETR:DBKGn) revised its year-end target for the S&P 500 Index, lowering it from 7,000 to 6,150. The reduction comes as Deutsche Bank’s analysts, including Binky Chadha, who is known for his bullish market outlook, reassess the consequences of newly announced tariffs. The analysts have reduced their S&P 500 earnings per share (EPS) estimate for 2025 from $282 to $240, which suggests a 5% decline from the previous year’s figures.
The bank’s analysts have examined a range of factors that could be affected by the tariffs, including the ability of foreign suppliers to absorb these costs, the significance of intra-company imports, and the potential for price increases to be offset by volume declines. They also considered the loss of earnings from both imports from and exports to China, the slowdown in foreign growth, possible retaliatory actions affecting US sales abroad, and the ongoing uncertainty in the market.
Deutsche Bank forecasts a near-term wide range in equities, with the S&P 500 expected to fluctuate between 4,600 and 5,600. The analysis suggests that the market is susceptible to squeezes due to equity positioning being at historically low levels. Attempts at de-escalation in trade tensions have been made, but there has yet to be a significant change in trade policy. This, combined with growing macroeconomic concerns, has contributed to the bank’s cautious outlook.
The analysts also note that while a successful fiscal package could prompt a market rally, the positive effects for corporations are likely to be overshadowed by the negative impact of tariffs, leading to a short-lived improvement. Looking further ahead, Deutsche Bank maintains that a significant market rally could occur if there is a credible easing of trade policies. This scenario is contingent on a substantial decrease in approval ratings, which historically align with economic performance and consumer confidence. For investors seeking deeper insights into market trends and valuations, InvestingPro offers comprehensive analysis tools and additional ProTips to navigate market uncertainties. The analysts suggest that approval ratings need to fall to the low 40s, or potentially even to the mid-30s, for a credible policy change to occur. However, the risk remains that a relent in trade policies may not happen before the economy experiences the nonlinear effects of a recession.
In other recent news, Citi analysts have revised their year-end price target for the S&P 500, lowering it from $6,500 to $5,600 due to a decrease in the 2025 earnings per share estimate from $270 to $255. This adjustment reflects a more conservative valuation assumption amid ongoing uncertainties in the global trade system influenced by the Trump administration’s tariff policies. Meanwhile, the SPDR S&P 500 ETF Trust experienced its largest premium to underlying assets since 2008, closing about 90 basis points above its net-asset value after a significant surge. This was partly due to traders covering bearish trades following President Trump’s announcement of a tariff pause for some trading partners.
Prominent investor Bill Gross has expressed concerns over the volatility of U.S. stocks, noting their dependence on presidential decisions, particularly in light of the recent market surge following Trump’s tariff announcements. Jefferies analysts have also highlighted increasing volatility in the treasury market, drawing comparisons to the "Dash for Cash" phenomenon of Spring 2020. Despite fluctuations, Jefferies noted that the selloff in Treasuries has remained orderly and suggested market stabilization might follow the 10-year note reopening. These developments are being closely monitored by market participants as they navigate through various economic uncertainties.
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