David Kotok Warns Tariffs Could Trim S&P 500 Market EPS by 30 Cents
Despite widespread dismissals of the Moody’s U.S. debt downgrade as a non-event, market opened the week on shaky footing — with both stocks and bonds under pressure.
Part of the unease stems from growing concerns over America’s fiscal health, but for veteran investor David Kotok, there’s a more specific threat on the horizon: tariffs.
Kotok, co-founder and former chief investment officer of Cumberland Advisors, laid out his latest analysis in a note to clients, estimating that tariffs alone could shave 30 cents off S&P 500 earnings per share over the next year. That would bring consensus EPS estimates down from $2.60 to around $2.30.
“These estimates are mine alone — and they’re wrong,” Kotok said candidly. “But I believe they’re a reasonable starting point.” He explains that the calculation comes from models designed to translate tariff impacts into corporate tax-equivalent changes.
While the Trump administration and GOP lawmakers are pushing for corporate tax cuts, Kotok points out that every 1% cut in the current 21% tax rate only adds about 2 cents to S&P 500 EPS — a small offset compared to the earnings hit from tariffs.
Zooming out, Kotok sees broader risks that could drive S&P 500 earnings down to a range of $200–$220 per share, factoring in not just tariffs but also a slowing economy. At a price-to-earnings ratio of 20, that implies an index level of 4,000 to 4,400. However, with Treasury yields climbing — as they did Monday — valuations could compress further, potentially pulling the S&P 500 below 4,000 in a worst-case scenario.
A more moderate outlook, Kotok says, would see the index closer to 5,000, assuming less aggressive tariffs and limited retaliation against U.S. service exports.
Still, he leaves the door open for surprises: “A Trump pivot or a financial crisis prompting Fed intervention could shift this trajectory dramatically,” Kotok concludes.
