Bank of America cut its 2019 profit outlook for the stock market's biggest companies on Monday, citing renewed trade tensions between the United States and two key trading partners.

The bank's head of U.S. stock strategy warned clients that the market's price has yet to reflect the impact the dispute between Washington and Beijing could have on long-term earnings, and reduced her S&P 500 earnings per share target to $166.

"Globalization has been a key driver of S&P 500 margin expansion via tax arbitrage, labor arbitrage, supply chain efficiency gains, and the like," Savita Subramanian wrote. "US companies have not been able to exert enough pricing power to offset the rising cost pressures, as evidenced by our Corporate Misery indicator, a macro gauge of margin risk."

Subramanian, who sees the finishing the year at 2,900, added that Monday's 1.2% cut to her prior target of $168 could be just the start of the downgrades if Chinese tariffs continue to increase. Taxes on all Mexican imports — on track to rise to 25% by October barring progress on immigration — could ultimately curb S&P earnings by an additional 0.6%.

May was an especially tough month on Wall Street as the Trump administration's move to hike tariffs on goods imported from China and plans to tax all goods from Mexico took investors by surprise. Traders who'd assumed that American and Chinese trade negotiators would be able to reconcile thorny intellectual property issues later punished risk assets, sending the Dow Jones Industrial Average plunging more than 1,700 points while the S&P 500 sank 6.5%.

The stall in U.S.-China talks in particular triggered — in addition to the more expensive imports — a significant shift in Wall Street's upbeat markets and economic outlook. That was reflected in a sharp 40-basis-point drop in the 10-year Treasury note rate and subsequent inversion of the yield curve, following a growing belief that the Federal Reserve may be forced into cutting rates due to President Donald Trump's trade policy.

That likely leaves defensive stocks as a good investment option in lieu of consumer or industrial companies, Subramanian said.

"Stocks with the highest foreign exposure to China, multinationals, and companies with a high percentage of imported [cost of goods sold] have sold off since mid-April when negative headlines re-commenced," she wrote. "We estimate the S&P companies only have [about] 1% sales exposure to Mexico, but the imports from Mexico totaling $350B are more than imports from China that the U.S. currently has tariffs on ($250B)."

Though Bank of America said it prefers U.S. technology and telecommunications stocks to their Chinese counterparts, Subramanian cautioned against bets on the semiconductor market until trade deliberations are solved. Asia-Pacific markets have driven 74% of semiconductor company revenue growth since 2010.