Tariffs will hit earnings and flatten stock returns

Bank of America is calling for U.S. stocks to hold near current levels through the rest of the year following President Donald Trump’s move to put new tariffs on Chinese goods, which could further dampen corporate earnings.

The firm has a year-end target for the S&P 500 of 2900 points, just a hair below Thursday’s closing price of 2953.56 points. The S&P 500 has enjoyed a run of nearly 18% this year.

Bank of America sees a host of pressures that “should limit upside” of stocks for the rest of 2019, citing uncertainty from trade, geopolitics and the Federal Reserve, as well as “downward revisions to estimates” from corporate earnings. Last month, Bank of America pointed out that early second-quarter earnings were “healthy” but “warning signs” flashed in the form of some companies lowering forecasts.

“Our sensitivity analysis suggests that fresh tariffs (10% on $300B) would represent a hit to S&P 500 earnings of 30-40bps from rising input costs,” Bank of America’s equity strategist Savita Subramanian said in a note to investors on Friday.

Despite the expected hit to companies’ results, Subramanian said that “we still like US stocks.”

“The ‘easy money’ to be made is in longer term investments,” Subramanian said, adding that Bank of America prefers “inexpensive, domestic quality cyclicals, like Financials” and sees “no signs of an imminent recession / bear market.”

– CNBC’s Michael Bloom contributed to this report.