Investor Sees Bear Market Coming

Tariffs Could Cut S&P 500 Market EPS by 30 Cents, Warns David Kotok

While many market watchers are brushing off Moody’s recent downgrade of U.S. debt, both stocks and bonds slipped to start the week — suggesting investors may be more concerned than they let on.

In the background, longtime investor David Kotok is sounding the alarm on a different issue: tariffs. In a new note to clients, Kotok estimates that tariffs alone could reduce S&P 500 earnings per share by 30 cents over the next year — from $2.60 to $2.30.

“These are my own estimates — and yes, they’re wrong. But they’re a reasonable place to start,” says Kotok, who co-founded Cumberland Advisors and is known for hosting the annual “Camp Kotok” retreat for top economists and investors.

His projection is based on models that convert tariff levels into equivalent changes in corporate tax rates. Even if the Trump administration succeeds in lowering the current 21% corporate tax rate, Kotok notes, each percentage point cut would only boost S&P 500 EPS by about 2 cents — not nearly enough to offset the impact of new tariffs.

Looking beyond tariffs, Kotok warns that a slowing economy could further pressure corporate earnings, potentially bringing S&P 500 EPS down to a range of $200 to $220. At a valuation of 20 times earnings, that would imply an index level between 4,000 and 4,400. But if Treasury yields continue to rise — as they did Monday — that multiple could contract, pulling the index even lower.

“The worst-case scenario puts the S&P 500 below 4,000,” Kotok says. A more moderate case, assuming lighter tariffs and limited retaliation against U.S. services, would see the index closer to 5,000.

Still, he emphasizes that the outlook could shift quickly. “A Trump policy reversal or a financial crisis that forces the Fed to step in could dramatically alter the path forward,” he notes.