How far the tariff sell-off can go may depend on how long they last, according to Wall Street firms. Stock futures plunged Monday after President Donald Trump hit several key trading partners with tariffs over the weekend. He implemented a 25% tariff on goods imported from Mexico and Canada, while China was hit with a 10% levy. Dow Jones Industrial Average futures were last down more than 600 points. S & P 500 futures dropped 1.6%, while Nasdaq-100 futures lost 1.7%. Wall Street firms anticipate that tariff headlines will continue to weigh on equities for the foreseeable future, though how far the damage goes ultimately depends on how long the levies last and how severe they are. Here is what they are saying: David Kostin, chief U.S. equity strategist, at Goldman Sachs “Large tariffs pose downside risk to our S & P 500 earnings estimates and return expectations. If company managements decide to absorb the higher input costs, then profit margins would be squeezed. If companies pass along the higher costs to its end customers, then sales volumes may suffer. Firms may try to push back on their suppliers and ask them to absorb part of the cost of the tariff through lower prices. We estimate that every 5pp increase in the US tariff rate would reduce S & P 500 EPS by roughly 1-2%. As a result, if sustained, the tariffs announced this weekend would reduce our S & P 500 EPS forecasts by roughly 2-3%, not taking into account any additional impact from major financial conditions tightening or a larger-than-expected effect of policy uncertainty on corporate or consumer behavior. Our economists describe the outlook as unclear but believe there is a substantial probability that the tariffs on Canada and Mexico will be temporary.” Mark Haefele, chief investment officer at UBS Global Wealth Management “In the weeks ahead, tariffs are likely to represent an overhang on markets and contribute to volatility, at least until investors gain greater clarity on the path and destination of US trade policy.” “More to go in equities. Although we will continue to monitor trade policy closely, our base case remains for the S & P 500 to rise to 6,600 by year-end. Tariffs on Canada and Mexico are unlikely to be sustained, US economic growth should represent a tailwind for stocks, and we continue to believe that AI presents a powerful structural tailwind for earnings and equity markets. We believe that the recent development of DeepSeek, a lower cost AI model, will ultimately lead to even broader proliferation of AI, enhancing growth and productivity.” Michael Wilson at Morgan Stanley “Tariffs Reinforce Our Preference for Services Industries. … On Saturday, President Trump signed orders for 25% tariffs on Canada and Mexico and 10% on China. Stocks sold off intraday on Friday based on related headlines, but for the most part over the last several weeks, price action had been resilient all things considered. This tells us that the equity market had been leaning toward (1) a gradual/measured approach on China and (2) tariffs on Mexico/Canada that either wouldn’t be imposed or would be very short-lived following mitigation of security considerations. From here, the market’s previous baseline view is likely to be tested the longer these tariffs stay on. As discussed, we have a relative preference for services (Financials, Software, Media & Entertainment, and Consumer Services) over Consumer Goods for a number of reasons and we would expect the market to rotate further toward services given recent trade policy implementation. Goods-oriented industries with stronger pricing power (Multi-Industry/Cap Goods) are better positioned to manage this than industries without it (Consumer Discretionary Goods).” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets “Our 6,600 year-end 2025 S & P 500 price target has assumed we would get at least one 5-10% drawdown in the index, and we’ve been on guard for such a pullback early in the year. The onset of tariffs on Mexico/Canada/China raises the risk that this will occur for a few reasons. US equities have looked overbought in terms of our positioning work (see our comments above on the CFTC data) as well as valuation (where various flavors of forward P/E’s that we track have been slipping from extreme highs or levels that typically market a ceiling – pages 77-78, and 83). Additionally, most macro forecasters have been arguing that meaningful tariffs were a negotiating tactic rather than a real possibility, contributing to the complacency in the broader index as it sits around all time highs.” “Our bottom line on the US equity market outlook: Current conditions are fluid, and while it doesn’t seem appropriate to pivot from our base case for the S & P 500 to our bear case, the likelihood that we may need to do so has admittedly increased a bit.” Chris Rupkey, chief economist at FWDBonds “We are stunned after the President’s announcement which is an abrupt retreat from the world as we know it. The stock market will crater on Monday morning with the first trade on the Dow lower by 1,000 points. America first apparently means the rest of the world is last and this announcement could do lasting damage to how America is seen in the rest of the world and turn our allies into adversaries right when the world is in an increasingly dangerous place.” Tavis McCourt, strategist at Raymond James “Initially, we expect U.S. equity investors will search for companies with U.S. content, whose business can withstand a higher for longer rate environment with limited exposure outside the U.S. This is very hard to find, we are in a global economy, but there is more of it in small and mid cap indexes than in the S & P 500. Utilities, Financials, Real estate, Portions Of Health Care, defensive and service industries broadly may be viewed as short term “safe harbors” if tariff talk continues to ratchet up before a final resolution is attained.” Scott Chronert, U.S. equity strategist at Citi “Tariff Math — Our high-level assessment is that each 1pp increase in the effective tariff rate on US imports translates to -0.6% off index level consensus estimates, all else equal. A 10% baseline tariff that increased the overall effective tariff rate by 7-8pp would fall in the realm of a one-time 4-5% haircut to our NTM earnings forecast. The projected earnings impact scales with tariff magnitude and breadth, yet policy specifics will matter.”
