As companies release their first-quarter earnings, Morgan Stanley and Citi have revised their 2025 earnings forecasts downward, joining other Wall Street banks in warning that tariffs could suppress profit growth. Scott Chronert, Citi's U.S. equity strategist, reduced the S&P 500's 2025 forecast from 6,500 points to 5,800 points, based on an earnings per share expectation of $255, down from $270. Similarly, Morgan Stanley's Mike Wilson lowered the 2025 EPS forecast from $271 to $257.
Wilson noted that while the recent 90-day tariff suspension and further concessions have reduced the immediate risk of a recession, uncertainty remains high. He expects the S&P 500 to fluctuate between 5,000 and 5,500 points, with the index recently closing at 5,363.36 points. The S&P 500 has declined by 8.8% this year due to growing investor concerns about U.S. assets.
Wilson warned that if the 10-year U.S. Treasury yield rises above 5% from its current 4.46%, the S&P 500 could fall below 5,000 points. Signs of a global trade slowdown are emerging, with companies worldwide pausing orders. This uncertainty is expanding, impacting both corporate and consumer confidence.
Chronert and Wilson suggest looking for opportunities in sectors where prices already reflect risks, such as transportation, materials, semiconductors, automotive, pharmaceuticals/biotech, and hardware, while remaining bearish on consumer discretionary and staples.
