How much will Trump's tariffs impact the market? Goldman predicts a potential 5% decline in US stocks in the short term.

Intelligible Finance learned that Goldman strategists said U.S. stocks could fall 5% in the coming months as Trump's latest round of tariffs hit profit forecasts. Trump announced tariffs of 25% on goods imported from Mexico and Canada, which will take effect Tuesday unless a last-minute deal is reached. China will be hit with a 10% tariff, and Trump reiterated his warning to the EU that tariffs "will definitely happen." David Kostin, a strategist at Goldman, wrote in a note that "these statements have shocked many investors who expected tariffs only in the event of a trade negotiation failure. Our economists see the outlook as uncertain, but believe that the tariffs on Canada and Mexico are likely to be temporary." Kostin said the latest tariffs would shave about 2% to 3% off his profit forecasts for S&P 500 companies if they persisted, without accounting for further tightening of the financial environment or changes in consumer and business behavior. He also warned that the fair value of the S&P 500 could fall about 5% in the short term as both profits and stock valuations were hit. Kostin was one of the more cautious voices on U.S. stocks in early 2024, and he has raised his year-end targets multiple times in the past year to catch up with the S&P 500's rebound. For the end of 2025, the strategist set a target of 6,500, which means an 8% rise from Friday's close. Despite a 2.7% rise in the S&P 500 in January, investor sentiment has been affected by fears that Trump's policies will lead to inflation. Tech stocks have also been hurt by fears that the U.S. may not be able to maintain its lead in artificial intelligence innovation. Global stocks plunged on Monday as investors feared that the latest tariff moves could lead to a full-blown trade war. Everyone is watching the fourth-quarter earnings season for clues on how U.S. companies are preparing for Trump's protectionist agenda. While still in the early stages, tariffs have dominated conference calls after earnings releases. Michael Wilson, a strategist at Morgan Stanley, was one of the most prominent bearish voices on U.S. stocks before mid-2024. He said so far the U.S. stock market has been optimistic about the prospect of ongoing tariffs, but that view "could be tested as these tariffs persist." Lori Calvasina, a strategist at RBC Capital Markets, also warned that the S&P 500 could fall 5% to 10% as investors' exposure and stock valuations were high after the tariff announcement.