Bank of America has warned that rising trade tensions, especially between the U.S. and China, may negatively impact corporate profits in the coming year. The bank forecasts that tariffs and retaliatory actions could lower S&P 500 earnings by about 9%, with an additional 1% impact from Canadian tariffs.
The European Union is also anticipated to introduce countermeasures. If earnings growth remains unchanged, BofA estimates S&P 500 earnings per share for 2025 at around $250. The bank has updated its year-end target for the S&P 500 index to 5,600, with a projected trading range of 4,000 to 7,000.
Impact Of Tariffs On Earnings
We’ve seen Bank of America lay out a detailed assessment of how current trade dynamics, particularly friction between the U.S. and China, could ripple through corporate earnings. The point is direct: tariffs are no longer just tools of negotiation; they are beginning to bite into projected profits. The estimate—a potential 9% cut to S&P 500 earnings from U.S.–China measures alone—adds a layer of risk we can’t overlook. A further nudge downward, around 1%, is attributed to Canadian levies. Altogether, that brings the earnings projection for 2025 down to about $250 per share, assuming growth otherwise holds steady.
We are now working in an environment where policy uncertainty, rather than traditional macro indicators like inflation or interest rates, may shape near-term equity performance. Those using derivative strategies should go beyond watching headline indices and instead measure implied volatility against realised metrics more frequently. This is not the moment to rely on macro-themes alone.
The update to the year-end target for the S&P 500—set now at 5,600 with a wide bracket between 4,000 and 7,000—tells us something else. This kind of bandwidth is rare and not without intention. There’s acceptance here that price discovery might swing more sharply in either direction, depending largely on political and external shocks, more than sector-specific fundamentals. Simply put, the confidence interval has widened, and we must prepare accordingly.
Sectors Shielded From Global Trade Flows
Sánchez, who contributed to the bank’s latest macro note, pointed out that earnings resilience is not guaranteed in an atmosphere of escalating tariffs. That’s not merely theoretical. When you map back historical earnings reactions to trade barriers, you tend to see a delay in impact—but the effect does accumulate. If that historical pattern holds, decisions made in summer may influence earnings well into the fourth quarter.
With that wider range in mind, there are a few practical signals we should be tracking. Look at skew—both index and single-stock. Are puts pricing in more drawdown than the implied level of risk from trailing realised volatility? That can be a tell. Also, longer-dated volatility is worth a glance. If tails are starting to lift, the market may be quietly repositioning for broader dislocations, not just short-term noise.
In the meantime, Elliott from their equity strategy group has leaned into sectors more shielded from global trade flows, particularly those where domestic demand is the primary driver. That isn’t a signal to flee risk or pivot portfolios aggressively, but their emphasis suggests that sector rotation—when layered with implied correlation metrics—may hold more relative value than outright index directionality.
We should also not ignore what’s building in Europe. While the headlines may still be catching up, policy desks inside the EU are likely working through proposals that match recent U.S. measures. When retaliation becomes reciprocal, dislocations in currency and interest rate expectations are not far behind. Watching cross-asset volatility is more important now than it has been for the past few quarters.
If we take the bank’s range at face value, then short gamma at the extremes becomes far riskier in the next few weeks than it has been year-to-date. During the past few months, realised moves remained tame, tempting short-vol participants, but we’re not in that environment anymore. Any repricing of earnings multiples combined with the uncertainty around tariffs points to a higher risk of breakout moves on either end.
Earnings season is still ahead, and guidance commentary will provide forward-looking colour. But we don’t need to wait for weeks to reposition long exposure towards delta-neutral configurations where appropriate. Many in the structured product space are already leaning that way.
As we look ahead, break-even levels derived from straddle pricing near the 5,600 mark will provide a valuable gauge for whether the market is leaning complacent or hedging with precision. The tools have not changed, but the assumptions behind them now deserve more scrutiny.
