Averages of polls show that Donald Trump’s chances of getting another term in office have been slowly rising over the past few weeks. His plans to put tariffs of up to 20% on most goods imported into the U.S. have also been slowly rising as well.
A lot of people think that these new tariffs will have a big effect on S&P 500SPX 0.40% stocks. Some industry groups will be more affected than others.
Barclays analysts think that if Trump’s government puts 10% tariffs on all imports and a 60% tax on those coming from China, it would cut S&P 500 earnings per share by 3.2% in 2025. This amount would go down even more when trading partners of the U.S. put in place their own tariffs in response.
According to a client note from Barclays equity analyst Venu Krishna, the new proposed tariffs would have a small negative impact on corporate earnings if they were put into place. However, the higher cost inflation would have a second-order effect that would hurt corporate earnings even more.
He also said that the sectors that “appear to be most at risk” are materials (XLB 0.40%), consumer discretionary (XLY 0.39%), industrials (XLI 0.30%), technology (XLK 0.36%), and healthcare (XLV 0.49%). This is because these sectors are very dependent on global supply lines.
Some of these sectors have done better than the S&P 500 index as a whole, even though polls and betting markets are going in Trump’s favour.
Forbes founder and managing partner Christopher Smart says that one reason the markets haven’t moved more in anticipation of Trump’s win could be that investors don’t believe his threats of tariffs.
Smart asked in a Thursday note why markets weren’t responding more strongly to the possibility of a Trump win, given that he wants to impose large tariffs that even his supporters say will mess up global supply chains.
It’s likely that Trump “won’t implement more than half of the tariffs he has threatened on the campaign trail,” according to Smart. Instead, these “will be used over time as part of a set of negotiations with [the] Chinese, Europeans, and Mexicans, and won’t have a big effect on earnings until 2026,” Smart says.
If you look at the recent small rise in 10-year Treasury yields (TMUBMUSD10Y 4.082%) and the rising dollar index DXY -0.35%, he still thinks that markets are pricing in the possibility of not only tariffs but also a huge deportation operation that could hurt the U.S. job market. This could be a sign of bigger market moves to come.
Smart wrote, “Of course, these aren’t important for today’s stock prices doesn’t mean they’re not important for the future of humanity.”
