Transatlantic Trade Monitor: Facts You Need Now | Global Equity Strategy: Read-Through From Latest Tariff Announcements

In terms of equity market impacts, we note that Europe has seen the largest downgrades to earnings per share (EPS) growth among major regions so far this year. We’ve made the case that current European EPS growth forecasts of 1% for 2025 are consistent with U.S. tariffs of ~20%, meaning some upgrades are possible from here. Sector-specific tariff risks will vary.

The 39% tariff imposed on Switzerland strikes us as surprisingly high, and could result in a 4 pp to 7 pp drag on 2025 EPS growth, with much depending on the final level of pharmaceutical tariffs. Healthcare makes up some 35% of MSCI Switzerland market cap and some 40% of earnings. But these risks are potentially offset by the announcements coming against the backdrop of a 5 pp cut to 2025 EPS forecasts since April, and market pricing for below-consensus 12-month forward EPS growth outcomes.

We see the announced 15% tariff on imports from Japan as a positive development, especially the significantly reduced levy on autos. We think U.S. tariffs could be a 4 pp drag on Japan’s fiscal 2025 EPS growth, with some more positive offset likely from gross domestic product and foreign exchange assumptions.

Substantial uncertainty remains around tariff rates for emerging markets, but we’ve estimated that U.S. tariffs could directly reduce MSCI emerging-markets EPS growth by 5 pp to 6 pp this year. With EPS growth forecasts only revised down modestly so far this year to 12%, more downgrades are possible from here.

For the U.S., we see a 15%+ effective tariff rate as possibly driving a ~5% hit to S&P 500 earnings, though the overall tariff impact should be manageable, and must be weighed against the broader backdrop of U.S. policy. Tariff impacts are more likely to be sector-specific, with potential risks to margins.

Turning to market views, we remain overweight on the UK as the least tariff-exposed region and on continental Europe, where forecasts already embed the largest amount of tariff risks. We’re underweight on emerging markets, given relatively small EPS downgrades year-to-date despite lingering tariff risks. Within Europe, we’re underweight on Switzerland.

The recent rally in global equities has left market pricing for EPS growth looking extended, especially in the U.S. Combined with signs of economic slowdown, tariffs could raise questions about the sustainability of continued near-term upside for equity markets. That said, our market targets still see upside to the middle of 2026.