Trump’s Trade Policies Could Trigger 8% S&P 500 Drop, Morgan Stanley Warns
Staff Editor Market Faces Headwinds as Trump Policies Raise Concerns
Morgan Stanley’s top stock strategist, Mike Wilson, has issued a cautionary outlook for the stock market in the first half of the year, citing weak returns expected for the S&P 500 over the next three months. Wilson points to risks associated with President Trump’s trade and immigration policies as potential hindrances to growth.
The S&P 500 is projected to trade between 5,500 and 6,100 over the next three to six months, suggesting a potential 8% drop or just over 1% rise. This trading range is heavily influenced by the uncertainties surrounding Trump’s policy implementations.
Investors, previously complacent about these risks, are now facing them head-on. Tariffs and stricter immigration enforcement are viewed as growth-negative in the short term, contrasting with the initial positive growth outlook tied to Trump’s tax cut plans.
Wilson warns that equity-negative policies could be implemented before the positive effects of de-regulation and tax extensions are realized. Recent tariff announcements have reignited concerns about higher inflation, rising interest rates, and slower growth.
Despite these short-term challenges, Morgan Stanley maintains a positive long-term market outlook. The firm forecasts the S&P 500 to reach 6,500 by year-end, indicating an 8% upside from current levels.
The recent announcement of a 25% tariff on imports from Canada and Mexico, though delayed for a month, has brought tariff implications back into focus. Analysts estimate that these tariffs could reduce earnings per share for S&P 500 companies by 2%-3%, potentially causing the index to slide by up to 5% in the coming months.
As the market grapples with these developments, its baseline view is likely to be tested if tariffs remain in place for an extended period. However, despite the early-year challenges, the overall outlook for stocks remains positive by year-end, according to Morgan Stanley’s analysis.
