Cuts to S&P 500 earnings “should mimic a recession,” says JPMorgan
JPM equity analysts cut full-year earnings forecast for S&P 500, say tariffs could be “a waterfall event for forward EPS.”
JPMorgan analysts cut their full-year earnings estimate for the S&P 500 by about 7% from $270 per share to $250, warning that the severity of President Trump’s tariffs announced at the White House last Wednesday could prompt a wave of like-minded axe-swinging on estimates in the coming days.
In a note published early Monday, they wrote:
“As a direct result of the new tariffs of an estimated $600 billion (ceteris paribus), S&P 500 negative earnings revisions should mimic a recession assuming most of the incremental tariff burden will be absorbed by companies largely through lower margins and weaker demand. Even though Consensus was gradually revising down estimates even before April 2nd, new tariffs should be a catalyst for a waterfall event for forward EPS with a risk of further downside from potential retaliation (e.g., tit-for-tat tariffs, boycotting, higher friction cost for S&P 500 foreign revenue exposure).”
With earnings season set to unofficially start on Friday, the tone and forecasts offered by executives will also be a factor in how markedly analysts shift their profit projections.
For what it’s worth, even before the tariffs, it didn’t seem like this coming earnings season was expected to be great. Market research firm FactSet reports that more companies than usual have issued “pre-announcements” telegraphing that their results are going to be below Wall Street expectations, and that analysts had been cutting first-quarter estimates by an above-average amount relative to the last 5, 10, and 15 years.
Calendar year and first-quarter 2025 earnings expectations from Wall Street analysts have come down pretty quick, especially since the start of the year.
But stock prices are typically more closely attuned to expected profits over the next 12 to 18 months, and the rolling 12-month bottom-up expectation for S&P earnings haven’t cracked — at least not yet.
To state the obvious, whether or not those full-year expectations tumble in the “waterfall event” JPM foresees as a result of tariffs will be a crucial driver of the market in the coming weeks. Some on Wall Street have said the direction of EPS estimates is the “most important variable” to watch to see if stocks have a chance of durably regaining their footing.
