The U.S. stock market welcomed Donald Trump’s victory in the 2024 presidential election, but turbulence may lie ahead if the president-elect makes good on his tariff threats.
“Tariffs are basically bad for the economy,” said David Kelly, chief global strategist at JP Morgan Asset Management. “You can actually have a stagflationary effect of both increasing inflation pressures and reducing economic growth at the same time.” The materials and consumer discretionary sectors could face double-digit earnings declines, due to their significant supply and production presence in Mexico and Canada, Barclays said.BofA Global Research expects a 1% hit to S&P 500 earnings if tariffs on China double to 40% while they rise to around 8% for the rest of the world, excluding Mexico and Canada. But with retaliatory tariffs, which hurt foreign sales, the earnings hit would rise to 5%, the bank’s strategists wrote.
The materials and industrial sectors were the market’s worst performers during a U.S.-China trade war in 2018, both falling more than 5% over a nine-month period, according to RBC Capital Markets. The tech sector tended to underperform on days of announced U.S. tariffs or China retaliations in 2018 and 2019, with particular weakness in hardware and semiconductors, a Citi analysis showed.
Automakers manufacturing in Canada and Mexico could feel the heat from any tariffs, Lefkowitz said. General Motors and other auto shares sold off after Trump’s tariff pledges last month.
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