Must Read Research
Also featuring commentary from Global Economic Weekly
February 9, 2025
Candace Browning, Head of BofA Global Research
Stick with the game plan. This week we break down which Latin American countries have the best playbook in case of tariffs and whether S&P 500 earnings are holding pace.
The 25% tariffs threatened by President Trump on Canada and Mexico were not likely to be permanent, in the view of our Global Economics team.
The duties would have been too disruptive and, in a flurry of notes published early last week, analysts and strategists wrote about potential ramifications. For example, vehicles imported from Canada and Mexico could cost an extra $6800 while S&P earnings could see an 8% hit, with an even greater impact on small cap profits. Tariff threats are expected to continue until a new USMCA (United States-Mexico-Canada Agreement) is finalized and, whether it’s because of trade uncertainty or because tariffs linger, our LatAm Economists examine the export baskets and flag some possible winners. Brazil could benefit in the short term as they redirect exports of oil and ag products to the U.S. Meanwhile, Central American and Caribbean countries could see a boon from more exports of food, light manufacturing, and semiconductors.
76% of S&P 500 earnings have been reported so far.
Our U.S. Equity Strategy team says EPS is tracking a 4% beat, implying 12% y/y (year-over-year) growth. 67% of companies beat on EPS (earnings per share), above the historical average of 59%. Hyperscalers are expected to spend $290 billion in capex this year (+34%y/y), confirming that DeepSeek concerns have not altered AI ambitions. However, a bear case is emerging as semis look more vulnerable than last year as geopolitical risks rise amid a global AI arms race. On a more positive note, Corporate Sentiment is at a record level, which suggests a continued upcycle in EPS. “Bottom” mentions also soared 24% y/y, the biggest jump in history, suggesting a potential inflection in manufacturing.
Claudio Irigoyen, Head of Global Economics, BofA Global Research
The cone of tariff uncertainty
Our framework for trade policy has passed its first test. Canada and Mexico avoided tariffs (for now). China did not. The news flow on tariffs might cause whiplash. We think investors should instead focus on underlying incentives and the evolution of the administration's priorities. The trade war should remain contained if the administration prioritizes growth. But if it emphasizes tariff revenues or bilateral trade deficits, further escalation would be likely.
Must Read Research will return the week of February 23rd.
