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9 ways tariffs could upend stocks' fundamental story: Chart of the Week
At this point, it's no secret that tariffs are the leading driver of the stock market narrative. Or, rather, tariffs and their announcements, rumors, and responses.
Any incremental news on tariffs being softer than previously thought has sent stocks higher over the past week. Any signs that the trade war could be escalating have led to more selling.
Recent research from Deutsche Bank chief global strategist Bankim Chadha helps us understand why. On Wednesday night, Chadha — one of the biggest bulls on Wall Street entering 2025 — slashed his year-end S&P 500 forecast to 6,150 from a prior target of 7,000 . This call included a detailed look at why the firm now sees S&P 500 earnings per share hitting $240 this year instead of $282.
Chadha listed nine different headwinds weighing on his S&P 500 earnings forecast. Given the escalation of the trade war , exports and imports with China are expected to weigh on profits. Lower oil prices will hurt profits in the energy sector. As tariffs push increased prices on consumers, many expect slowing economic growth. That will bring lower-volume growth for corporates and a hit to earnings. The same could be said for how persistent uncertainty is expected to weigh on growth. Our Chart of the Week has them all.
The pressing issue for investors has been that any one of the headwinds seen in the chart above could materially change at any moment. As Chadha put it, there is "significant uncertainty about the precise magnitudes" by which the headwinds he identified impact earnings growth. Even the uncertainty has uncertainty.
Of course, outlooks are always uncertain. But this time really is a bit different as the whole thing could change with a post on Truth Social. For instance, the 145% tariff rate is expected to fall . Perhaps in a range of 50% to 65%, as the Wall Street Journal reported . It could be higher. It could be lower.
Wherever it lands will have a significant impact on operating costs for companies heavily exposed to China. And likely a significant one on companies that do business with companies that are heavily exposed to China.
And given that earnings are arguably the most important driver of stock prices , this has created a conundrum for markets: How do you accurately price out what a given stock, or the market as a whole, should be worth if the path for earnings is full of so many variables?
The market's wild swings of late show the difficulty of answering this question in real time. But for the current market rally to be sustained, strategists like Chadha continue to argue that dialed-back tariffs are a key part of the bull case for stocks.
"Our base case remains for a significant rally on a credible relent on trade policies, with a target of 6150 by year end," Chadha wrote. "The risk to our view is we don't get a relent before the nonlinearities of recession kick in."
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer .