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Deutsche Bank has slashed its year-end target for the S&P 500 (^GSPC) to 6,150 from 7,000, citing the impact of tariffs on companies. In the video above, Yahoo Finance Markets Reporter Josh Schafer reports the details.
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Uh, revision from one of Wall Street's biggest bulls. Deutsche Bank is cutting its year end price target for the S&P 500, citing the economic risks of the trade war. For more on this call from Deutsche Bank, we've got Yahoo Finance's Josh Shafer. Josh, what do we know?
Yeah, Brad. So this is now the 11th firm that we track out of the 17 that I have on our tracker that has cut their S&P 500 target basically in the last month amid Trump's trade wars. So Deutsche Bank moving their target from a very bullish 7,000. It was one of the most bullish on the street, heading into the year, to 6,150, which candidly is a pretty decent rally from where we are right now in the S&P 500. So what Pinky Chada is saying in this note essentially, he highlights nine different headwinds to earnings, which really stuck out to me. There are nine different separate categories including things like direct hits from China imports, China exports, lower oil prices, persistent uncertainty. But nine different things bring their earnings per share for the S&P 500 down from 282 to 240. What sticks out to me among that is, again, I keep saying nine. There's a lot of variables here. And I think that speaks to sort of what the market struggle has been, right? Is how do I price these nine different things? All of them could change tomorrow. What sort of happens and then sort of round this out, what brings us back to 6,150? President Trump finally relents is essentially what Chada kept writing about. So he pointed to President Trump's approval rating. If you look at Trump's approval rating, it actually hasn't come down nearly as much as one might think. It has come down, but he's essentially arguing that it has a lot further to fall. So on this chart here that you're seeing on your screen, he probably argues that, so you're at a little bit, I think, at 47, essentially, is your white line white line for approval. He thinks it comes down to maybe the mid to low 40s. Maybe that's when Trump sort of capitulates and backs off.
Sorry to jump in here, but this morning there was a Reuters Ipsos poll showing a 37% approval rating as well. So we are starting to see that dynamic playing out.
Right. And and essentially, he's saying that if that continues to move lower, then at some point, Trump will kind of throw in the towel on some of the trade policy. Now, of course, the risk here being is the toothpaste already out of the tube, as one of our guests recently said, right? With this uncertainty and do you get just an overall economy that's already slowing, even if we do sort of roll back on some of these tariffs and that is a key risk to that 6,150 price target.
Which, it's interesting as well that he's acknowledging just pulling back on some of the announcements or pulling back on how fierce he has been about rolling out some of the tariff policy without clarity here. So it's it's not talking about getting a good deal or having some type of negotiation that nets out in exactly what was promised going into the announcement of these tariffs.
No, Brad. I mean, look, going back to the part of this report I'm talking about, where he talks about specific headwinds to earnings per share, $9 headwind to earnings per share out of the 40 that they took off just simply from persistent uncertainty. So if you can remove that variable, you, in theory, get nine bucks back, right? If we want to look at it in a simplistic way that way. There's $10 in here that is just China exports, China imports because of the level of tariffs we have on them. Well, if you roll back those tariffs a lot and there isn't this intense of a China trade war, and American companies are able to continue to do trade with China, there's 10 bucks back on your earnings per share. So essentially, yes, if you start to roll some of these things back, you might be able to save some of the earnings growth that people are now seeing getting a lot worse.
It also really sticks out to me that several of the headwinds he notes are key positions of the administration, like keeping oil prices low, for example. Is that going to go away if that's something that the administration has continued to say they want?
Well, eventually, that just hurts energy companies' profits, right? And that's sort of what he's looking at there.
Absolutely. Josh, thank you so much. Really appreciate it as always.