By Globalfinserve Business Desk
March 2025
Barclays Plc (NYSE: BCS) has become the latest Wall Street bank to adopt a cautious stance on US stocks, cutting its 2025 S&P 500 (^GSPC) price target to 5,900 from 6,600. The revision, announced on Wednesday, reflects concerns over rising tariffs, weakening consumer sentiment, and deteriorating economic data, which are expected to weigh on corporate earnings and overall market performance.
Barclays Cuts S&P 500 Target: Key Factors Behind the Downgrade
Venu Krishna, Head of US Equity Strategy at Barclays, cited three primary reasons for lowering the bank’s S&P 500 target:
- Tariffs from the Trump administration: The imposition of new tariffs on Chinese imports is expected to reduce corporate earnings power by raising input costs and disrupting supply chains.
- Weakening economic indicators: Falling consumer sentiment, sluggish growth, and higher inflation are dampening corporate outlooks.
- Expensive Industrials sector: Krishna highlighted that Industrials look overvalued relative to historical norms, making them vulnerable to trade policy risks and slowing manufacturing activity.
“We think it will be tough for stocks to work versus deteriorating consumer sentiment, lower growth, higher inflation, and tariffs,” Krishna wrote in a client note.
Sectors Most at Risk: Consumer Discretionary and Industrials
As part of the downgrade, Barclays reduced its rating on two key sectors:
- Consumer Discretionary (XLY): Downgraded to Negative from Neutral due to weak consumer sentiment and reduced spending power.
- Industrials (XLI): Also cut to Negative from Neutral, with Krishna warning that the sector is overvalued and faces trade policy headwinds.
Industrials are particularly exposed to the ongoing tariff spat, with manufacturers front-loading production ahead of potential new levies. Barclays also flagged the risk of government contract cancellations, which could further weaken the sector.
Barclays Turns Bullish on Financials
In contrast to its bearish stance on Discretionary and Industrials, Barclays upgraded Financials (XLF) to Positive from Neutral.
- The bank cited potential deregulation under the Trump administration as a tailwind for Financials, particularly for regional banks and large-cap financial institutions.
- Krishna noted that deregulation could boost lending activity and profitability, especially if tariff issues are resolved later in the year.
Other Wall Street Banks Are Also Cautious
Barclays’ move follows a broader trend on Wall Street, where major banks are increasingly bearish on US equities:
- Goldman Sachs also cut its S&P 500 target earlier this month, citing concerns over tariffs and a potential economic slowdown.
- JPMorgan Chase & Co. raised its US recession probability to 40%—the second-highest forecast on Wall Street after BCA Research, which has set the likelihood at 75%.
- Goldman’s chief economist, Jan Hatzius, warned that the market could be negatively surprised if tariffs go into effect on April 2, as the Trump administration has suggested.
Impact of Tariffs on US Stocks and Corporate Earnings
The Trump administration’s new tariff policies are a major concern for US equity markets.
- The new round of tariffs targets $60 billion worth of Chinese imports, including automotive parts, machinery, and consumer electronics.
- Tariffs are expected to increase input costs for US companies, reducing profit margins.
- Export-dependent sectors such as Industrials, Technology, and Consumer Discretionary are likely to be hit the hardest.
“Industrials look expensive versus history and are exposed to both trade policy risks and tenuous manufacturing PMI, with factories front-running tariffs,” Krishna wrote.
Economic Data Paints a Gloomy Picture
Barclays’ lowered outlook comes amid weak US economic data:
- Retail sales for February came in below expectations, highlighting consumer weakness.
- Consumer confidence data also showed a decline, reflecting increased caution around spending.
- Large-cap companies such as Delta Air Lines (DAL), FedEx (FDX), and Nike (NKE) have issued profit warnings, citing slowing demand.
Gary Cohn, former director of the National Economic Council and current vice chair at IBM, warned that the market is facing ambiguity due to unclear trade policies and slowing growth.
“Ambiguity is the No. 1 enemy of a market,” Cohn said. “When a company creates ambiguity in their earnings profile, the market will punish that stock. When politicians create ambiguity through tariffs, the market as a whole reprices.”
Market Reaction and Outlook
Following Barclays’ downgrade, US markets witnessed increased volatility:
- The S&P 500 fell by 1.2% in midday trading, reflecting investor jitters over the revised outlook.
- Technology stocks and Industrials were the hardest hit, while Financials posted modest gains on expectations of deregulation benefits.
Investor Implications
For investors, Barclays’ lowered S&P 500 target underscores the need for a defensive strategy:
- Diversify into defensive sectors: Sectors such as Healthcare (XLV) and Utilities (XLU) may offer greater stability amid market uncertainty.
- Increase exposure to Financials: With potential deregulation on the horizon, Financials could outperform.
- Hedge against volatility: Consider using put options or inverse ETFs to protect portfolios from potential downside risks.
Conclusion
Barclays’ decision to cut its S&P 500 price target to 5,900 from 6,600 reflects growing concerns over tariffs, weakening consumer sentiment, and sluggish economic data. With Wall Street banks turning increasingly cautious and recession risks rising, investors should brace for potential volatility and choppy market conditions in the coming months.
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