The S&P 500 is headed for an earnings recession this year, Deutsche Bank strategists Parag Thatte and Binky Chadha are now forecasting. The analysts cite the impact of Trump tariffs and a "potential backlash on U.S. sales abroad." The pair slashed their forecast for S&P 500 earnings per share by nearly 15% in a Thursday note.
However, the S&P 500 is rallying for a third straight day on Thursday. Momentum has continued from President Trump's comments earlier in the week that he won't fire Federal Reserve Chairman Jerome Powell and that he wants to substantially cut tariffs on Chinese imports.
S&P 500 Earnings
Deutsche Bank cut its S&P 500 EPS forecast to $240 from $282. That would be flat from S&P 500 earnings in 2024, according to FactSet data. However, the Deutsche Bank strategists say their new S&P 500 EPS forecast implies a decline of 5% from last year.
Q1 earnings had been running about 7% higher than a year ago as of April 17, according to FactSet. That means even a flat year for EPS would imply an earnings recession later in 2025.
FactSet data as of April 23 showed company analysts forecasting S&P 500 EPS of $264 this year. That's the bottom-up estimate based on the aggregate consensus estimate for each S&P 500 company. The bottom-up forecast has come down from $272 at the end of 2024.
Consensus Views Decline
The Deutsche Bank team sees the S&P 500 trading in a range of 4,600 to 5,600, with macroeconomic concerns mounting "in the absence of a credible relent on trade policy." The implication is that Trump's talk of substantially lowering tariffs on China falls short.
Meanwhile, in an April 21 commentary, LPL Financial strategists Adam Turnquist and Jeffrey Buchbinder wrote that they see more downward earnings revisions in the cards, predicting EPS of $250 to $255 for the S&P 500 this year. LPL, which had a fair-value 2025 target for the benchmark index of 6,275 to 6,375 at the end of 2024, introduced a new target of 5,650 to 5,800 amid "a storm of uncertainty."
Earnings "expectations need to come down, even under a best-case scenario where the added reciprocal tariffs are eliminated," they wrote, highlighting a growing list of U.S. companies pulling forward guidance, including Walmart.
