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Tariffs and how they can impact stock and bond prices:

Writer's picture: Matthew Lawson Matthew Lawson

Tariffs and how they can impact stock and bond prices: 

 

Tariffs can influence prices through several mechanisms, reflecting both the direct effects on companies and the broader economic implications: 

 

Direct Impacts on Stock Prices: 

1.      Cost Increases: 

o    Imports: Companies who are heavily reliant on imported goods face higher costs due to tariffs, which can squeeze profit margins or lead to higher prices for consumers. This often results in lower stock prices for these companies. 

o    Exports: If trading partners retaliate with their tariffs, U.S. exporters might see reduced demand for their products abroad, which can hurt stock prices of export- oriented companies. 

2.      Supply Chain Disruptions: 

o    Tariffs can disrupt established supply chains, forcing companies to seek alternative suppliers, which might be more expensive or less efficient. This can lead to operational inefficiencies or delays, affecting stock performance negatively. 

3.      Sector-Specific Reactions: 

o    Beneficiaries: Domestic producers in industries protected by tariffs might see an increase in stock prices as their products become more competitive against now pricier imports. 

o    Losers: Companies in sectors where inputs are now more expensive due to tariffs could see their stock prices fall as profitability is threatened. 

 

Indirect Impacts on Stock Prices: 

1.      Inflation Expectations: 

o    Tariffs can raise the price of goods, contributing to inflation. Higher inflation expectations can lead to: 

§  Increased bond yields: As investors expect higher returns to combat inflation, this can decrease stock valuations, especially for growth of stocks. 

§  Tighter monetary policy: If the Federal Reserve responds by raising interest rates, this dampens stock market enthusiasm. 

2.      Economic Growth: 

o    A tariff-induced slowdown in economic activity can lead to lower corporate earnings forecasts, negatively impacting stock prices across the board. 

3.      Currency Fluctuations: 

o    If tariffs lead to a stronger U.S. dollar due to reduced trade deficits or investor flight to safety, this can make U.S. exports more expensive, hurting multinational companies' overseas sales and thus their stock prices. 

4.      Market Sentiment and Volatility: 

o    Tariffs introduce uncertainty into the market. Investors might: 

§  Sell off stocks anticipating an economic downturn or trade wars. 

§  Shift to defensive sectors like utilities or consumer staples, or to safer assets like bonds or gold, affecting stock market dynamics. 

5.      Corporate Strategy Adjustments: 

o    Companies might adjust strategies, such as: 

§  Price increases to offset tariff costs, which could lead to reduced consumer demand or shifts in stock valuation based on how these changes are perceived. 

§  Cost-cutting measures or finding new markets, which investors might view positively or negatively depending on the success and implications of these moves. 

 

Historical Context and Recent Developments: 

·         Historical Examples: The Smoot-Hawley Tariff of 1930 is often cited for its negative impact on the stock market, contributing to the Great Depression. More recently, the 2018-2019 U.S.-China trade war saw significant market swings based on tariff announcements and negotiations. 

·         2025 Context: With the recent data indicating a slight downturn in the S&P 500 and discussions around new tariffs, sectors like manufacturing, tech (due to reliance on Chinese components), and automotive could see stock price volatility. Conversely, domestic producers in these or related sectors might experience stock price gains if they benefit from protectionism. 

 

In summary, tariffs can lead to a complex interplay of factors influencing stock prices, with outcomes varying by company, sector, and the broader economic response to trade policy changes. 

 

Best, 

Lawson Winchester Team 


The views expressed are not necessarily the opinion of Cadaret Grant, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.

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