America’s experiencing a “crisis of confidence” and the US “exceptionalism” narrative needs a new catalyst.
That’s according to SocGen’s Manish Kabra, who slashed his rosy year-end S&P target by all of 5% to a still optimistic 6400 in a strategy update.
He cited the collapse in both US consumer sentiment and CEO moods, with the latter now the dreariest in a dozen years.
Kabra, like a lot of folks, attributed a majority of the S&P correction to the DeepSeek shock. “[T]he top-5 largest stocks in Artificial Intelligence added c.700 points (12%) to the S&P 500 [and] we expect at least half of this AI premium to disappear,” he wrote.
The figures give you some context. On the left, you can see where the S&P would be excluding Nvidia and its largest customers. On the right, Kabra plots the cumulative SPX point gain from the same five stocks.
He suggested, in passing, that the next tech driver for the US might be robotics. I’ve heard from several market and industry observers that China’s lead in that field is quite pronounced.
As for Trump, Kabra said that “post-‘Liberation Day'” (and I like that everyone, from the media to analysts, without no exceptions, is putting that in scare quotes, implicitly giggling at Trump’s attempt to spin a tariff announcement as a new patriotic holiday) the White House will probably pivot “to focus on the positives of banking de-regulation and tax cuts.” “Once the negatives have played out,” Kabra went on, “we expect confidence to return,” and that should allow for equities to rebound on the back of “supply-side reforms” and a few Fed cuts.
Note that “reforms” is almost always a misnomer in the context of supply-side economics. There’s nothing “reformist” about unfunded tax cuts, the benefits of which accrue disproportionately to the rich and corporates, nor about de-regulation if it increases risks to, for example, consumers and the environment. That’s the opposite of “reform.” “Reform” would be, for example, bipartisan legislation to make it easier for builders to construct residential housing.
Anyway, Kabra reminded clients that profits are strong. He’s right about that. Indeed, margins were the third-fattest on record in Q4, according to BEA data released late last month.
The table above just shows SocGen’s scenario analysis. As you can see, there’s a “downturn” case where the S&P trades down as low as 4600. That’s not their base case.
The “bubble case,” which Kabra’s talked up previously, seems wildly far-fetched at this juncture, and indeed he played it down in his latest. “Given increasing AI competition, we think it highly unlikely that our bull-case scenario would materialize this year [and] we continue to forecast lower-than-expected growth for the Nasdaq 100 both in 2025 and 2026.”
That said, he’s still pretty optimistic overall. The bank’s base case is that “confidence will return and pervasive uncertainty is not permanent.” “It’s remarkable,” Kabra said, that the S&P isn’t down more, given just how rattled investors, consumers and CEOs currently are.
“It’s remarkable,” Kabra said, that the S&P isn’t down more”. The market doesn’t really fall until both happen: (1) everyone knows the fan is full of sht and (2) everyone knows that everyone knows it. Too many Trumpsiders still believe he’s not shoveling sht, that it’s really gold. So… not so remarkable in my mind.
Kabra’s optimism for the year end does seem remarkable however. I guess that could happen too, if Trump breaks enough things and markets tumble and plunge protection teams join forces to put a floor under things and new stimmies show up and who knows what could appear. Kabra might win the S&P target, but he’s not predicting how low it could before we get there.
For some reason, “Liberation Day” always puts me in mind of Bill Pullman’s “Independence Day” speech from the movie of the same title. I just can’t decide whom from the administration’s cast of motley characters to cast in Randy Quaid’s roll.
The expected pivot to tax cuts is playing out today. However, I think it is unlikely that Trump will pivot as quickly as he would like to. For one thing, it doesn’t seem like he knows what the tariff rates are going to be 2 hours before they are due to be announced. There are some conflicting numbers being “leaked”. The big obstacle is the inevitable reciprocal tariffs, which will make him mad. And there is the chance that some head of state will insult him, which would make him really mad. Then we start the “I double dog tariff you” thing all over again.
Well we had the Tesla Deal Days, and now it’s on to the Make America Wealthy Again Event. MAWAE?
If Obama left any of his Hawaiian dictionaries around the White House, Trump may have taken a peek.
MAWAE (m?’-w?’e), adj.
Hidden; secreted; stolen.
Kabra’s statement about tariffs that “once the negatives have played out” is doing a lot of work here. How long will it take to restructure supply chains? The negatives could take a long time to play out before “we expect confidence to return”.