Goldman Sachs: Trump’s Tariffs Could Wipe 5% Off S&P 500

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Goldman Sachs has warned that the stock market could decline by 5% in the coming months due to President Donald Trump’s decision to impose hefty tariffs on key U.S. trading partners.  

David Kostin, the bank’s chief stock strategist, outlined the potential impact of Trump’s 25% tariff on Mexico and Canada, along with a 10% tariff on China. These measures, set to take full effect by Tuesday, are expected to pressure corporate earnings and reduce stock valuations, he noted.  

According to Goldman’s estimates, earnings per share (EPS) for S&P 500 companies could drop by 2%-3%, as every five percentage point increase in the U.S. tariff rate is projected to lower earnings by 1%-2%. The market downturn could be even more severe if tariffs lead to tighter financial conditions or if they significantly affect business and consumer behavior.  

"Large tariffs create downside risks for our S&P 500 earnings estimates and return projections," Kostin wrote. He explained that if businesses absorb the increased costs, profit margins would shrink, while passing those costs on to consumers could hurt sales. Additionally, stock prices may be dragged down by uncertainty surrounding Trump’s economic policies. On Friday, the U.S. Economic Policy Uncertainty Index surged to 502, placing it among the highest readings in four decades.  

Economists have also cautioned that Trump’s tariffs could fuel inflation and keep interest rates elevated. Although Trump imposed tariffs in his first term without triggering major inflation, the broader scope of his current tariff strategy has raised concerns about price increases.  

Goldman economists predict that inflationary pressure from the tariffs could cause a temporary rise in bond yields, reflecting changing interest rate expectations. However, slower economic growth is likely to limit any sustained increase in yields over time.  

"If the market fully prices in the continued enforcement of these tariffs, the S&P 500 could see a near-term decline of around 5%," Goldman stated. "If investors interpret these tariff moves as a sign of further escalation, losses could be even steeper."  

Since the start of the year, investors have been bracing for a potential stock market correction amid heightened volatility following Trump’s return to the White House. As markets adjust their expectations for economic growth and inflation, Goldman Sachs maintains its forecast that the S&P 500 will reach approximately 6,500 by the end of 2024, suggesting a 7% gain from current levels.

 

 

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