Deutsche Bank Cuts S&P 500 Target 12% Citing Tariff Concerns

One of the most bullish voices on Wall Street has significantly reduced its year-end target for the S&P 500 index, citing concerns over the impact of tariff policies on U.S. enterprises. Bankim Chadha, the lead strategist at Deutsche Bank, has slashed the target by 12% to 6150 points. This adjustment, while still indicating a 14% upside from the closing price on Wednesday, suggests that the index will only recover the losses incurred since its February peak. Prior to this revision, Chadha's team had maintained one of the most optimistic forecasts for the S&P 500 on Wall Street.

Chadha's team also anticipates that earnings for S&P 500 component companies will decline by 5% this year, contrasting with the market's broader expectation of an 8% increase. The strategists noted in a report that the potential impact of announced tariffs could disproportionately affect U.S. enterprises, leading them to lower their 2025 earnings per share forecast for the S&P 500 from $282 to $240. They also warned of further downside risks to market expectations.

President Trump's aggressive trade policies have had a direct impact on the U.S. stock market, eroding investor confidence in dollar-denominated assets. While the initial tariff announcements led to a market rebound, the S&P 500 index has still declined nearly 9% year-to-date, and the dollar index has fallen by 6.5%.

With the risk of economic slowdown intensifying, analysts have become increasingly pessimistic about corporate earnings prospects. The revision rate of S&P 500 earnings—comparing upward and downward adjustments—is approaching its downward limit. Strategists estimate that the new tariff rates will increase the effective tax rate on imported goods from 2.3% to 26.4%, equivalent to an additional $800 billion in taxes. In comparison, the total federal corporate tax revenue in the U.S. for 2024 is expected to be around $500 billion.

In the short term, given that stock positions have fallen to the lower end of the historical range, strategists expect the S&P 500 to fluctuate within a wide range of 4600 to 5600 points. The index closed at 5376 points on Wednesday. For a sustained recovery, the U.S. government will need to adjust its current trade policies. Strategists believe that as the economy begins to deteriorate, the pressure on the government to do so will increase, making such an adjustment likely. However, the longer the delay, the higher the risk of recession.

Chadha's team emphasized that significant drops in government support rates may be necessary to prompt genuine concessions. Post the initial honeymoon period of a new administration, support rates often closely align with economic performance, particularly consumer confidence.