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Key Takeaways

• Stocks fell on Monday after President Donald Trump decided to impose tariffs on America's three largest trading partners: Canada, Mexico, and China.

• The tariffs as outlined could reduce the S&P 500's fair value by about 5%, said Goldman Sachs analysts in a note released Sunday.

• In a podcast appearance recorded last week, Marko Kolanovic, former chief strategist at JPMorgan, voiced concern that high market concentration, stock valuations, and political turmoil set the stage for a market correction this year.

Stocks fell on Monday as markets reacted to President Trump’s decision to impose tariffs on America’s three largest trading partners, sparking concerns a trade war could hit consumer and corporate finances.

Trump over the weekend ordered the imposition of a 25% tariff on Canadian and Mexican imports and a 10% levy on Chinese goods. Canadian oil and energy imports won a carve-out and will be subject to a lower 10% import tax.

On Monday morning, Trump announced the Mexican tariffs would be delayed by one month after Mexican President Claudia Sheinbaum agreed to deploy the military to the U.S.-Mexico border. Canadian and Chinese tariffs are scheduled to go into effect just after midnight on Tuesday morning.

U.S. stocks stocks came off their earlier lows after the delay of tariffs on Mexican products but remained firmly in negative territory in recent trading.

Tariffs Could Be 5% Blow to S&P 500, Says Goldman

Goldman Sachs analysts modeled out how the tariffs could impact U.S. markets, and estimated the levies may reduce the S&P 500’s fair value by roughly 5%.

Tariffs, they explained, will either shrink U.S. profit margins by raising input costs or, if higher costs are passed on to consumers, slow sales. “We estimate that every 5pp increase in the US tariff rate would reduce S&P 500 EPS by roughly 1-2%. As a result, if sustained, the tariffs announced this weekend would reduce our S&P 500 EPS forecasts by roughly 2-3%,” the analysts wrote in a note released Sunday.

In addition, tariffs are expected to support U.S. dollar strength. International sales account for about 28% of the S&P 500’s revenue, and a stronger dollar eats into the value of those sales. Though, the analysts note, the dollar's impact on earnings may be limited given Canada and Mexico account for less than 2% of the S&P 500’s sales.

The tariffs have amplified economic and political uncertainty, threatening to undercut Wall Street’s appetite for risk. According to Goldman, the U.S. Economic Policy Uncertainty Index on Friday jumped to 502, its highest level since March 2020. Historically, this level of uncertainty has translated to a 3% reduction in the S&P 500’s forward P/E ratio.