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.

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

🟢 What’s up

• Walgreens Boots Alliance rose 5.60% as the pharmacy chain nears the completion of a deal to go private for $10 billion.
• Okta popped 24.27% on stronger-than-expected earnings for the company that always seems to lock you out of your work laptop at the worst possible moment.
• Super Micro Computer rebounded 8.51% following a string of down days after the embattled semiconductor company finally reported its long-delayed quarterly earnings last week.

What’s down

• Best Buy may have beaten Wall Street’s forecasts last quarter, but the stock fell 13.30% on lower-than-expected fiscal guidance due in no small part to tariffs.
• Target also beat fourth-quarter earnings expectations thanks to a strong holiday season, but shares still sank 3% after management warned that tariffs could hurt sales.
• Tesla tumbled 4.43% on the news that its sales in China fell nearly 50% in February to their lowest point in two years.
• Automakers across the board sank on today’s tariff news as investors worried that the higher costs of parts from Canada and Mexico will cut profits: Ford fell 2.88%, General Motors dropped 4.56%, and Stellantis sank 4.38%.
• Financial stocks took their fair share of hits today as investors worry about tariffs causing a slowdown in economic growth: Capital One Financial fell 5.75%, Affirm Holdings lost 7.84%, and Morgan Stanley fell 5.74%.
• Fears that tariffs will take a toll on travel demand hurt airlines like Delta Air Lines (down 6.43%) and United Airlines (down 5.96%), and cruise companies like Royal Caribbean (down 5.83%).
• Soundhound AI announced it will delay reporting its quarterly 10-K filing—never a good sign. Shares of the AI voice tech company tumbled 5.86%.

It’s only the first day of the trade war, but the consequences have already reached far beyond just the stock market.

Companies have been frantically rushing to ship goods into the US before the tariffs hit, sort of like NYC rush hour commuters squeezing past each other to catch their train before the doors close.

That’s why the US trade gap widened 26% in January, reaching a record $153 billion, according to the Commerce Department. Exports rose 2% to $172 billion for the month, while imports rose 12% to $325 billion as companies ordered in bulk to stock up ahead of tariffs.

The steep import increase contributed to a startling GDP prediction: The Atlanta Fed originally forecast that GDP would rise about 2% in the first quarter of 2025, but last Friday shifted its prediction to a 1.5% decline. In fact, just yesterday the Atlanta Fed moved its forecast even lower: It now anticipates a 2.8% contraction in GDP.

Everything is about to get pricier

That was all before tariffs finally arrived—and now that they’re here, a GDP decline isn’t the only problem the US economy faces.

Our old friend inflation is expected to get a second wind, thanks to the levies. Economists largely believe that corporations will pass the cost of tariffs onto consumers, pushing PCE higher.

“US inflation could be 0.3 to 0.6pp higher vs baseline over the next 3-4 months (putting headline PCE inflation at 2.9% to 3.2%),” Morgan Stanley strategist Michael Zezas wrote.

Where will prices be hit the hardest? According to Bank of America, the top imports from our neighbors up north include petroleum products, metals and machinery, while the top exports from Mexico are machinery, vehicles, and food and beverages.

But what about the benefits touted by tariff proponents, such as increased domestic manufacturing?

“Higher tariffs will raise prices of imported goods, boosting demand for some domestically-produced goods,” explained Goldman Sachs Chief Economist Jan Hatzius.

But a slew of retaliatory tariffs, which will likely be implemented by Canada and Mexico, complicate that picture. “But tariff increases will also raise production costs for some domestic producers and will likely prompt foreign retaliation against some US exports, both of which could hurt domestic production,” Hatzius continued.

Hatzius also noted that, even though demand for domestic employment increased during the previous trade war in 2018/2019, it was offset by retaliatory tariffs and higher manufacturing costs.

In short: Today’s day one of the new tariff reality, and the economic effects have only just begun to unfold.—LB

• President Trump has paused all aid to Ukraine, while the EU announced plans to pour $840 billion into defense spending.
• BlackRock now controls the Panama Canal.
• The world’s largest dividend was just cut.
• Prada is nearing a deal to acquire rival luxury brand Versace for $1.6 billion.
• The CFPB has dropped its lawsuit against big banks JPMorgan, Bank of America, and Wells Fargo over the Zelle payment network.
• The SEC has dismissed its lawsuit against crypto exchange Kraken, hot on the heels of its dismissed cases against Coinbase, NFT exchange OpenSea, and Robinhood Markets. Coinbase, for one, isn’t going quietly—it filed a Freedom of Information Act request to find out how much the SEC’s investigation cost taxpayers.

We hate to do this since we know you’re being inundated with tariff talk (and we’re part of the problem), but we thought we’d break out some tariff-specific news of the day to help you keep up with everything going on:

• Tariffs are an act of war, according to Warren Buffett.
• Mexican President Claudia Sheinbaum spoke today, noting that “No one wins with this decision,” and has vowed to unveil retaliatory tariffs on Sunday.
• Canadian Prime Minister Justin Trudeau also spoke this afternoon, calling today’s tariffs “a dumb thing to do.”
• President Trump will speak to the nation tonight in the not-technically-a State of the Union address.
• The EU may be next, as Trump has previously vowed to slap 25% tariffs on goods from the European bloc of nations. But ironically, today’s tariffs may actually be good news for countries like the UK.
• Here’s all the stuff that’s going to get more expensive thanks to tariffs.
• The housing market is about to get worse thanks to tariffs on homebuilding materials and deportations of migrant laborers.
• Will the Fed come to the rescue? Markets are now pricing in three rate cuts this year, with the first arriving in June.

We’ll take a brief pause from tariffs tomorrow and turn our attention to ISM services PMI, which measures the health of the services industry, as well as the ADP employment report, a look at the private jobs market. We’ve also got a couple of earnings reports worth watching, such as Victoria’s Secret, The Campbell’s Company, Zscaler, and Marvell Technology—plus, two retailers struggling to find their footing.

Before the open

• Foot Locker has been undergoing a transformation since the middle of 2023. Called the “Lace Up” plan, because there’s nothing like a bad pun to inspire shareholder confidence, the idea was to relaunch the brand and refocus stores. Over a year and a half later, the effects of the turnaround plan seem to be minimal: Foot Locker missed sales estimates last quarter and lowered its fiscal guidance, while its margins were squeezed by Nike, which is pursuing its own turnaround and forcing Foot Locker to sell its shoes at sales prices. Shareholders will be hoping for good news this quarter, but shouldn’t hold their breath. Consensus: $0.73 EPS, $2.32 billion in revenue.
• Abercrombie & Fitch also promised a comeback, then spent 2023 making it a reality. But 2024 was a different story: Shareholders came to expect great things from the clothing retailer, and even though sales and earnings both continued to recover, it wasn’t enough, and the stock spent last year waffling up and down. While investors lost interest, Wall Street still sees good things ahead: Analysts are broadly optimistic that the company will continue to report sales and margin improvements, which is why the average analyst price target is almost 88% higher than where shares trade today. Consensus: $3.29 EPS, $1.52 billion in revenue.