The Tariff Announcements . What's Discounted, Where Could the S&P 500 Bottom?

Some thoughts from research and current thinking ..

One way to look at "what is discounted" in the stock market from the US tariff announcements yesterday is to realize that the US brought in $80 billion in tariff revenues in 2023 and an estimated $83 billion in 2024. Some analysts believe an increase in tariff revenues to $300 billion was discounted at the March low (SPX down 10.5%). What was announced yesterday was much bigger than that at $600-700 billion. By extension, that suggests the S&P 500's total decline could reach 21-25% before a tariff tax of $600-700b is discounted.

Of course, some of the $600-700 billion of tariffs proposed may not occur due to successful negotiations, changes in tariff rates and/or Trump & Co adjusting its policy as the stock market approaches a 20% bear market decline. On the CON side of the ledger, our trading partners (China, EU) may retaliate causing a trade war of unknown duration and we will likely see higher inflation in the US and an increased probability of recession. Some economists are already projecting both a global and US recession if all of what was proposed by Trump & Co. plays out. Source: Bloomberg

For reference, using the longer-dated Dow Jones Industrial index, a bear market that coincides with a recession has averaged a 35% decline over 353 trading days (1.4 calendar years). A bear market not associated with a recession has averaged a 25% decline over 296 days, or 1.2 calendar years.

Net-net: it seems like a shallow bear market decline of 18-22% would discount a lot of bad news. This equals 4800-5400 on the S&P 500, down anywhere from 1 to 11% from today’s current price of 5447.

Our base case is a decline to 5000-5200 (a 15-19% decline, down another 4-8%, which gets the S&P 500 back to its spring/summer lows of last year and equals a Fibonacci 38.2% retracement of the bull market since Oct 2022).
Our lower end expectation is a decline to 4820 (a 21% decline, down another 11% and equal to a 50% retracement of the bull market).

We have implemented additional cash in our strategies, tilted towards more defensive sectors and implemented hedge positions (that go up as the market declines). We will have to see what our indicators look like as this plays out and we approach the levels mentioned above to fine tune where to reduce current defensiveness and add back equity exposure.

As always, we are available for questions or comments.

Investment advisory services are provided through Integrated Advisors Network, LLC (“Integrated”) a registered investment advisor. Registration does not imply a certain level of skill or training. Vineyard Global Advisors, LLC is a practice group of Integrated.

The opinions expressed herein are those of Vineyard Global Advisors and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements cannot be guaranteed. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Vineyard’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. Vineyard Global Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Investment advisory services offered through Integrated Advisors Network, LLC (“Integrated), a registered investment advisor. Vineyard Global Advisors is a DBA of Integrated.

The S&P 500 Index is a stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States. It is market-capitalization-weighted, meaning companies with a larger market value have a greater impact on the index. The S&P 500 is widely used as a benchmark for the U.S. equity market and provides a broad representation of various sectors of the economy, including technology, healthcare, financials, and consumer goods. It is often used by investors to gauge overall market performance and to compare the returns of individual investment portfolios. This document contains performance data that references the S&P 500 Index (the "Index"). The S&P 500 Index is a market capitalization-weighted index of 500 of the largest publicly traded companies in the U.S., and is widely regarded as a benchmark for the U.S. equity market. Please note that the S&P 500 Index is unmanaged and does not include transaction costs, fees, or expenses associated with the purchase or sale of securities. Unlike the performance of the Fund, which may be subject to fees, the performance of the Index does not reflect the impact of these costs. Index returns are typically gross returns, unless otherwise specified. Past performance of the Fund or its manager is not indicative of future results, and there can be no assurance that the Fund will outperform or track the performance of the S&P 500 Index or any other benchmark. The S&P 500 Index is used solely for comparison purposes and does not reflect any investment strategy or portfolio. It is not possible to directly invest in the S&P 500 Index.

There is no guarantee that the investment objectives will be achieved. Moreover, past performance is not a guarantee or indicator of future results. Does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations.

Integrated is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Business is only transacted in states in which it is property registered or is excluded or exempted from registration. A copy of Integrated's and VGA's current written disclosure brochure filed with the SEC which discusses among other things, business practices, services and fees, is available through the SEC's website at: www.adviserinfo.sec.gov