‘Man-made problem’ of tariffs said to put S&P firms at risk of zero earnings growth
President Donald Trump’s tariffs threaten to hammer consumer demand, potentially resulting in absolutely no earnings growth for S&P 500 companies this year, according to UBS Investment Bank’s chief strategist.
Every one-percentage-point decline in gross domestic product growth is typically consistent with a 6.9-percentage-point drop in earnings growth, Bhanu Baweja said on a call Monday with reporters.
“What we’re going to get here could potentially be worse,” the strategist said. “It doesn’t stretch the imagination to say we could get zero percent earnings growth, potentially even negative earnings growth in the US.”
Analysts currently expect S&P 500 earnings to rise 11.2% in 2025, that’s lower than a projection of 14.4% at the beginning of the year, according to data compiled by Bloomberg Intelligence.
Market forecasters have rapidly ripped up their playbooks for the S&P 500 as Trump’s historic tariffs fueled a flight from stocks. With the benchmark down over 10% since the levies were announced on April 2, strategists at JPMorgan Chase & Co., Bank of America Corp. and Oppenheimer & Co. have slashed their year-end targets.
Baweja, who warned in late March of the “visibly tiring” US consumer, further reduced his prediction for the S&P 500 bottom: the gauge could sink to as low as 4,600 points - implying a drop of another 9% from Friday’s close.
“Sentiment is very, very poor,” he said. The market rout “could get much worse. We haven’t even come close to estimating the minimum P/E. Making the assumption that tariffs stick, we’re nowhere close to the worst-case scenario.”
It was a choppy trading session Monday amid a slew of tariff headlines, which included Trump threatening to “impose ADDITIONAL Tariffs on China of 50%” unless Beijing withdraws a 34% retaliatory duty on US goods.
Still, Baweja said any signs of softening in Trump’s stance could reset the market outlook again.
“This is a man-made problem, so if that one person changes his mind, suddenly the whole algebra changes,” Baweja said. “But it’s hard to see what the circuit breaker is at the moment. Things could get worse before they get better.”