Since President Trump took office, markets have been getting tariff false alarms. Investors hoped and prayed reasoned that tariff threats were more of a negotiating tactic, rather than oncoming economic policy.
But the 25% levies on our neighbors to the north and south are happening for real this time, along with an additional 10% tariff on goods from China.
We won’t lie: The market has seen better days. But with every economic shock comes opportunities, and the pros have some ideas about what corners of the market to avoid, and which could have a tariff-induced comeback.
How to prepare for the trade war
Broadly, the industries that will be hurt the most by today’s tariffs are autos, IT hardware and equipment manufacturers, as well as subsets of the consumer discretionary sector, according to Morgan Stanley strategist Michael Zezas.
The beverage industry could be hit particularly hard, according to Bank of America analyst Brian Callen, especially alcohol companies like Constellation Brands, Bacardi, and Diageo that are directly exposed to tariffs on Mexico.
But tariffs are going to be hurting more than just happy hour. “Other exposed sub-sectors are pockets of Consumer Products (notably recreational vehicles, appliances & toys), Food ingredients & agriculture costs, and packaging (e.g. steel or aluminum) that impacts all consumer goods and will weigh on consumer spending power,” BofA analysts added.
Making sense of market moves
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And let’s not even get started on automakers—Wall Street thinks tariffs are going to hit vehicle makers like a truck. BofA pointed to Ford, GM, and Stellantis as names that are facing higher production costs, as well as manufacturing suppliers Magna, American Axle, Lear, and Aptive.
And that’s not all: Industrial names such as Caterpillar and Deere could see additional pressure, according to BofA.
So, what won’t be hurt? “We find that domestic producers specializing in primary aluminum and steel production and oil and gas extraction would receive the most protection,” wrote Goldman Sachs Chief Economist Jan Hatzius. “This is because compared to other industries, tariff rates on imports in these industries will rise more and domestic producers in these industries currently compete more with imported goods.”
Let’s be clear: The stock market faces a tough path ahead. But analysts are still bullish on stocks long term.
“Despite trade uncertainty and economic concerns, inflation continues to moderate, Fed policy remains accommodative, and corporate earnings have been solid, reinforcing our view that the S&P 500 can reach 6,600 by year-end,” wrote UBS Chief Investment Officer of Global Equities Ulrike Hoffmann-Burchardi in a note today.—LB