BofA’s Hartnett says concentrated U.S. stock returns are likely to persist
Investing.com -- U.S. equity markets suffered steep losses last week following U.S. President Donald Trump’s reimposition of sweeping import tariffs.
The S&P 500 and Nasdaq fell 9.9% and 10.7%, respectively, over two days, extending their declines from record highs to 17.4% and 22.7%.
Ed Yardeni, president of market research firm Yardeni Research, described the selloff as “Annihilation Days.”
While Trump’s advisers claim the tariffs are designed to benefit Main Street over Wall Street, Yardeni argues that “Wall Street is Main Street.” He noted that American households own a substantial share of equities and said the sharp market drop is already hitting retirement portfolios and consumer sentiment.
The current administration believes that “the short-term pain will be worth the long-term gain,” but the problem is that “Americans don’t do pain very well and aren’t convinced that the eventual gain will be worth it,” Yardeni said.
The strategist thinks political pressure will likely intensify as retail investors—especially senior citizens—feel the effects.
Although Congress is limited in its ability to stop the tariffs due to Trump’s veto power, Yardeni said the president might be forced to reconsider if the fallout continues to jeopardize both economic stability and Republican control of Congress.
There is potential for a dramatic market rebound if Trump changes course. “An early end to Trump’s tariff nightmare would result in a V-shaped stock-market bottom. We’re counting on that; the alternative is just plain ugly,” the note said.
Legal challenges may also play a role. A Florida-based stationery company has filed suit arguing the tariffs are unconstitutional. Other business groups are reportedly exploring similar action.
Meanwhile, Federal Reserve Chair Jerome Powell dismissed Trump’s public call for immediate rate cuts, citing a “highly uncertain outlook” driven by the unexpected size of the tariffs.
The sharp decline in stock prices following Liberation Day could trigger a negative wealth effect, weighing on consumer spending and raising the risk of a recession. Recession odds on Polymarket surged to 60% by Friday, up from 42% at the start of April.
Yardeni Research also revised its own recession probability higher in recent weeks—from 20% on March 5 to 35%, and then to 45% on March 31.
The firm maintains a cautiously optimistic stance, still betting on U.S. economic resilience. But the firm’s projections have already been revised down, with its year-end S&P 500 target cut from 7000 to 6000 and 2025 EPS estimates lowered.
Yardeni believes that the best hope for markets may lie in Trump choosing an exit ramp—possibly by pausing reciprocal tariffs in exchange for negotiations. “The stock market undoubtedly would rebound sharply if he were to do that,” he added.