Tariffs Bite U.S. Companies, Wall Street's "Biggest Bull" Slashes S&P 500 Target by 12%

One of Wall Street's most bullish analysts is giving up on expectations of a big stock market rally this year, believing that tariff policies will have the most severe impact on American companies. Bankim Chadha and his team at Deutsche Bank have significantly lowered their year-end target for the S&P 500 index by 12% to 6150 points. While this still represents a 14% upside potential from Wednesday's closing price, it also indicates that it would only recover all the losses since the peak in February. Prior to this adjustment, the team had maintained one of the most optimistic forecasts for the S&P 500 index on Wall Street. The Chadha team also predicts that the earnings of S&P 500 constituent companies will decline by 5% this year, compared to the market's general expectation of an 8% growth. In a report, the strategists wrote, "Due to the significant potential impact of announced tariffs, which could disproportionately affect American companies, we are lowering our 2025 S&P 500 EPS forecast from $282 to $240." They also warned of the risk of further downward revisions being widely expected in the market. President Trump's aggressive trade policies have shaken investor confidence in US assets, with the stock market bearing the brunt of it. While the initial tariff announcements had sparked a market rebound, the S&P 500 index has still fallen nearly 9% year-to-date, and the Bloomberg Dollar Index has accumulated a 6.5% decline. As the risk of an economic slowdown intensifies, analysts are becoming increasingly pessimistic about corporate earnings prospects. The earnings revision ratio of the S&P 500 index - the ratio of expected upward revisions to downward revisions - is approaching its lower limit. The strategists estimate that the new adjusted tariff rates will increase the effective import tax rate from 2.3% to 26.4%, equivalent to a covert $800 billion tax increase. In comparison, the total federal corporate tax revenue in 2024 is only about $500 billion. In the short term, given that stock positions are already at historically low levels (indicating that the market is more likely to rebound on positive news), they expect the S&P 500 to fluctuate between 4600 and 5600 points. The index closed at 5376 points on Wednesday. To achieve sustained recovery, the US government must adjust its current trade policies. The strategists believe that as the economy starts to deteriorate, the pressure on the government is likely to increase, which may lead to this scenario. However, the longer the delay, the higher the likelihood of signs of recession appearing. The Chadha team emphasized, "For the government to truly make concessions, it may require a significant decline in their approval ratings. After the honeymoon period in the early days of a term ends, approval ratings are often closely related to economic performance - especially consumer confidence."