Hanan Investment Predicts 15% S&P 500 Decline Due to Tariffs

Hanan Investment has released a report predicting that the valuation of the S&P 500 index is likely to decrease by at least 10%, with a more probable decline exceeding 15%. This forecast is based on the potential economic impact of the Trump administration's high tariff policies, which could result in an effective tariff rate of around 10% or higher for the U.S. economy. The report highlights that even if negotiations lead to lower tariff rates, the complexity of the resulting tariff network and trade rules will create significant uncertainty for businesses.

The report also anticipates that the U.S. economy will experience a notable slowdown in growth, with an increased risk of recession. This economic deceleration is expected to be driven by several factors, including rising inflation due to high tariffs, which will lead to a decrease in household income and a slowdown in consumer spending. Additionally, the prolonged uncertainty surrounding tariffs is likely to cause a stagnation in business investment spending.

In response to these economic challenges, the report suggests that the U.S. government bond yields may gradually decrease throughout the year, and most central banks, including the Federal Reserve, may implement significant interest rate cuts to lower yield levels. This monetary policy shift is expected to further impact the valuation of the S&P 500 index, exacerbating the predicted decline.

In contrast to the U.S. market, Asian markets are currently valued near their historical average levels, making them a relatively defensive investment option. The report notes that several Asian countries, including India, South Korea, and Singapore, have already implemented or announced policy measures to support their economies. These measures include interest rate cuts, fiscal stimulus packages, and monetary policy easing, which are aimed at mitigating the impact of tariffs and promoting economic growth.

Hanan Investment advises investors to focus on Asian markets that can provide policy stimulus to offset some of the tariff impacts. Additionally, the firm recommends targeting markets where company-specific factors are driving an increase in stock returns. By adopting this strategy, investors can capitalize on the defensive characteristics of Asian markets while navigating the potential downturn in the S&P 500 index. This approach not only provides a defensive investment strategy but also offers opportunities for growth in a challenging economic environment.