Wall Street started in 2025 with sun and rainbow forecasts. He expected growth in S&P 500 stronger profits in 2025 than in 2024, which was a record year. But, during 2025, analysts’ forecasts emerged. The consensual forecasts of Wall Street of the annual growth of the annual profits of the S&P 500 in 2025 were 17% in January, fell to 13% in February, 12% in March, and currently, at the end of April, recorded at 8% per year (see the graph). Obviously, analysts see storm clouds on the horizon. But in our opinion, the 17% Wall Street initial forecasts have never been plausible, and the 8% today. Indeed, we are planning to grow profits from 2025 to 0%.
Why did we think that Wall Street’s profits for Wall Street were Pie in the sky? On the one hand, it was built on a defective hypothesis of strong economic growth. With regard to the determination of national income, we examine the theory of money of quantity, which stipulates that when the money mass contracts, a real economic activity and inflation will also contract. Since the Federal Reserve Foundation, there have only been four episodes of money mass contractions: 1920–22, 1929-1933, 1937-1938 and 1948-1949. All were followed by a recession and, in one case, the great depression.
Today’s case is no different. The cyclical slowdown we are attending was inaugurated by a slowdown in the past three years in the growth of the money supply, measured by M2. Since April 2022, M2 has not grown up. This indicates that the economic slowdown of the United States was launched before Trump took up his duties.
Prices and uncertainty
So, at the beginning of the 2025, just looking at the price of the money supply in recent years, we already knew that a slowdown in the United States had been cooked in the cake. Since the start of the year, however, the markets have been shaken by Trump’s pricing policies. Trade and tariff policies in itself are anti -corporate policies – after all, they are a tax on international transactions. But moreover, Trump eliminated or threatened to eliminate offices and government agencies and has tightened many others. These actions, as well as a plethora of other contained in an avalanche of presidential decrees, created the uncertainty of the regime.
In his book Depression, War and Cold War (2006), Robert Higgs defined the regime’s uncertainty (also known as political uncertainty) as “the probability that the property rights of investors in their capital and the income it makes is attenuated by government action”. It is a subset of commercial confidence. High levels of diet uncertainty are associated with low levels of business confidence, and the will of private parties to invest requires a sufficient level of commercial confidence. In other words, the uncertainty of the regime depresses private investment. Robert Pindyck of MIT said it as this: “Investment expenditure on a global level can be very sensitive to risks in various forms …[including] uncertainty about future tax and regulatory policies. The intellectual history of Higgs’s book was none other than Joseph Schumpeter, who expressed similar ideas in his currency book Capitalism, socialism and democracy (1942). Of course, there are always pockets of uncertainty dispersed in the economy, as is characteristic of any capitalist system. The uncertainty of the regime, on the other hand, is a systematic injection of uncertainty throughout the economy. As such, it is a rare event.
It turns out that the elements of uncertainty of the diet have already raised their ugly head. The signs are everywhere. The Boker uncertainty index, Bloom & Davis is currently at its highest level of its 40th anniversary, and Tuesday, the US consumer confidence index in April fell to its lowest level since October 2011. The New York Fed survey in April Fed on business leaders in the Tristate region has shown that capital spending plans plunging at levels observed only in the past two decades: The great financial crisis and the cowled locking. The level of uncertainty is so high that companies have even stopped investing in marketing and advertising campaigns for their products.
Investment freezing
The best historical parallel with the current situation in the United States is the case with the great depression. Indeed, the second New Deal of President Franklin Delano Roosevelt (1935-1940) also created the uncertainty of the regime. This led to Higgs called the “high duration” from 1933 to 1940, when the American economy continued to operate significantly below its capacity for 12 successive years after the start of depression in 1929. Thanks to the uncertainty of the regime, net private investment between 1930 and 1940 was negative. For what? Because the second new agreement inaugurated a reorganization of the American economy. This restructuring left business leaders and uncertain investors about the rules of the game. Trump’s radical policies and proposals have the same effect.
We therefore expect the real growth of GDP to climb to zero in the context of the punch of the stagnation of the money supply and the uncertainty of the regime caused by Trump’s policies. With that, we expect the growth in profits to fall to zero. Over the past 30 years, when economic growth has slowed down as we are planning, the growth in S&P 500 profits also fell to zero.
With the booming profits season, we expect more companies to get advice due to growing uncertainty and proliferating commercial interruptions. Even once Trump’s pricing regime is finalized, which could be – companies will remain uncertain of its sustainability, whether under this president or a future administration. Without long -term policy clarity, companies cannot reasonably justify long -term investments. Consequently, the current consensual expectation of Wall Street of 8% annual growth in profits will soon be revealed as nothing more than the pie in the sky.
Steve H. Hanke is a professor of economics applied at Johns Hopkins University and Author, with Leland Yeager, fromCapital, interest and expectation. Guy Patcho is an advisor to the Macro-Investment Discretionary Team by Two Sigma.
Find out more:
- It is impossible to put an end to the American trade deficit with prices, and this may eliminate two longtime American surpluses
- Trump’s prices are not “common sense” – and they endanger the credibility of America and the “exorbitant privilege”
- Trump’s pricing program is based on erroneous hypotheses on the trade deficit
- The prices will not make America again large: the former president and president of the Export-Import bank
This story was initially presented on Fortune.com
