Tariffs May Create US Market Turmoil: Sectors for Investors to Watch

 

The US market could see future volatility if Trump implemented high tariff policies.

 

Last month, Trump renewed his threat to raise tariffs on US trading partners, China, Canada, and Mexico. The tariffs' impact on the US depends on whether the threatened countries take retaliatory measures against the U.S.

 

However, economists gave a concerning economic forecast and an assessment of potential falling and rising stocks.

 

Oxford Economics' worst-case long-term outlook presented that global trade would contract by 10%; US growth would shrink about 1% from current expectations. Tariffs would strike corporate earnings in retail, industrials, and materials, accompanied by climbing inflation.

 

David Kelly, chief global strategist at JPMorgan, said tariffs could increase inflation while reducing economic growth.

 

Barclays (LON: BARC) strategists estimated that tariffs imposed on Canada, Mexico, and China and potential retaliatory actions could lead to a 2.8% drop in S&P 500 earnings, sharply cutting earnings in the consumer discretionary and materials sectors.

 

Bank of America expected that tariffs would cause S&P 500 earnings to fall 1%. But, if the retaliation comes, the drop in earnings would rise to 5%.

 

Deutsche Bank (ETR: DBKGn) economists said the tariffs could also raise the inflation gauge, the personal consumption expenditures price index, to about 2.5% by 2025.

 

RBC Capital Markets (RBC Capital Markets) believed that the materials and industrials sector would be the worst performer in the market but defensive stocks would have the strongest returns.

 

Citi claimed that given the popularity of the artificial intelligence sector, the tech sector represented by hardware and semiconductors could benefit from pre-tariff orders and reduce risks.

 

UBS said higher tariffs on China could make US retail, industrial, and hardware technology companies targets for retaliation, particularly Apple (NASDAQ: AAPL ), Starbucks (NASDAQ: SBUX), and Nike (NYSE: NKE). Additionally, automakers whose production is in Canada and Mexico will be hit with tariffs.

 

UBS also said that Trump used to measure his success by the market strength. So, he may be cautious about tariff measures. Optimistic investors believed that Trump's tax cuts and deregulation could offset the adverse effects of tariffs.