JPMorgan Says Tariff Hit to Stocks Could Be Even Worse Than Anticipated
JPMorgan Says Tariff Hit to Stock Earnings Could Be Even Worse
(Bloomberg) -- The hit to S&P 500 earnings from tariffs could be even worse than previously thought, according to JPMorgan Chase & Co.
Tariffs between the U.S. and China combined with levies on Mexico could send the S&P 500’s earnings per share down as much as $13, according to JPMorgan estimates. That’s if the U.S. imposes tariffs on $540 billion of Chinese goods, China levies $120 billion and the U.S. puts 25% tariffs on $350 billion of Mexican products. In May, the firm had said a full-blown trade war could hurt profits by $9 a share.
“The next round of tariffs that the Trump administration is threatening — Mexico 5% and China Phase III — could substantially increase the risk of pushing the U.S. business and profit cycle into an outright contraction,” strategists led by Dubravko Lakos-Bujas wrote in a June 7 note. “We are most concerned about the less predictable spillover effects created by abrupt changes in supply chains and declining sentiment by companies, consumers, and lenders.”
The U.S. bank has been one of many voices warning about risk from tariffs for some time. Last month, head of cross-asset strategy John Normand said tensions had increased the risk of a U.S. recession. Also in May, the firm said outright war could send the S&P 500 down to 2,550. That would be a drop of about 10% from the gauge’s June 6 close of 2,843.49.
Despite the dire scenarios, JPMorgan strategists see a resolution ahead of the presidential election.
“We continue to hold the view that the U.S. Administration will not jeopardize the business cycle and likelihood of re-election going into 2020, instead opting for a negotiated solution,” the strategists wrote. “We remain cautiously optimistic on equities.”
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