Goldman Sachs says new tariffs may undermine US equity gains

Goldman Sachs expects US corporate profits to decline if tariffs recently announced by President Donald Trump are sustained, possibly taking a toll on the performance of equity markets.

Goldman Sachs estimates that every five-basis-point increase in the tariff rate would lower the S&P 500's earnings per share by roughly 1% to 2%, if sustained, according to a recent note cited by Reuters.

Therefore, the US bank forecasts the index's gains to decline by 2% to 3% if the US administration commits to its latest tariff announcement, not taking into account any added impact from other trends such as monetary policy uncertainty.

However, there is a substantial chance that tariffs against Canada and Mexico would be temporary. Its FX analysts believe that tariffs could strengthen the dollar further, although that should have a limited impact on aggregate S&P 500 earnings.

"To the extent investors believe the tariffs will be a short-lived step toward a negotiated settlement, the equity market impact would be smaller," Goldman Sachs wrote, adding that there could be a bigger impact on equities if the latest announcements are viewed as signs of increasing the odds of additional escalation.