Mr. Market is trying to price in the earnings power of corporate America in a Trump tariff era that may be defined by slow growth and higher inflation.
It’s largely coming up empty so far, but pros say one conclusion could be made.
Current profit estimates for the S&P 500 (^GSPC) are basically useless.
“Our assumption is one full year of EPS growth has been lost,” Trivariate Research founder and CEO Adam Parker wrote in a new note on Monday. Parker — who held the chief US equity strategist role at Sanford Bernstein and Morgan Stanley — thinks it will be a “lost year” for corporate earnings.
The current bottom-up consensus earnings per share (EPS) expectation on the S&P 500 is $268.70. That estimates a 9.6% year-over-year gain. Some of the biggest EPS gains (see chart below) are seen in tech darlings Nvidia (NVDA), Broadcom (AVGO), Netflix (NFLX), and Microsoft (MSFT).
Parker contended investors “no longer” believe those earnings growth numbers. He reasons that 1% EPS growth this year to $250 a share is “probably a new base case.”
Parker explained, “In essence, what has happened is one-year of S&P500 earnings growth has been removed by the contagion from the tariffs, and we expect the consensus 2026 EPS will be roughly in line with the actual 2027 EPS.”
Wedbush tech analyst Dan Ives told Yahoo Finance it’s next to impossible to estimate future earnings right now.
The market rout — in large part fueled by major corporate profit unknowns — continued into Monday as tariff fears ripple around the world.
The Dow Jones Industrial Average (^DJI) plunged more than 1,200 points early in today’s session. The Nasdaq Composite (^IXIC) and S&P 500 (^GSPC) each fell close to 3%.
Sell-offs persisted in names tied to consumer spending such as Gap (GAP) and Lyft (LYFT). Investors also sold higher beta stocks in XPeng (XPEV).
Read more about today’s market action as tariff chaos grips Wall Street.
With markets under severe pressure, as they digest the penalizing impact of President Trump’s new tariffs, Goldman Sachs is back for the second time in a week with an increase in its recession risk probability.
The investment bank’s economists led by Jan Hatzius now see a 45% chance of a US recession in the next twelve months, up from 35% last week. Prior to that call, Goldman had been at a 20% recession probability risk.
“There is a possibility that markets are overreacting,” Independent Institute senior fellow and economist Judy Shelton told me on Yahoo Finance’s Opening Bid podcast. “That’s a normal human response. Markets are somewhat behavioral, and we won’t know if this panic is justified or not until it plays out a bit more.”