Wall Street tariff playbook looks at who beat the Fed
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Wall Street is trying to figure out winners and losers of the trade war as tensions heat up again, and it's looking for clues in the Federal Reserve's recent rate-hiking cycle.
Why it matters: As tariff policy continues to be murky, investors want to know which companies can survive regardless of where levies land. The winners and losers of rate hikes could provide that roadmap.
What they're saying: "Interest rates have existed a lot longer than tariffs," said Brian Mulberry, a client portfolio manager with Zacks Investment Management, which has over $20 billion in assets under management.
- Mulberry said the tariff shock will be "a lot less impactful" than the increases to the cost of capital have been.
Zoom in: To understand the factors that could make companies resilient to tariffs, look at what helped them withstand the negative effect of rate hikes:
- Low debt levels and healthy balance sheets.
- The ability to maintain forward guidance.
- Continued strength relative to peers.
Who wins? The companies that typically fit the bill described above are also the giants within each sector.
- Mulberry name checked the likes of Walmart, Microsoft, J.P. Morgan and Caterpillar, which are all up more than 70% and as high as 100% since the Federal Reserve started raising interest rates.
- For examples of potential losers, Mulberry pointed out Target and Kohl's, which were "overly leveraged to begin with and will continue to struggle." Both stocks are down over 50% since the rate hike cycle kicked off.
Between the lines: Adaptability is the name of the game for companies that have survived a lot over the last five years, from a global pandemic to record-breaking inflation.
What to watch: Earnings season is coming, and estimates for this cycle fell by more than the historic average given policy uncertainty, according to a recent note from FactSet.
- That could make it easier for companies to beat earnings expectations.
- "Superior earnings visibility and the high-quality nature of U.S. large-cap companies — particularly in the technology sector — continue to support investor confidence," according to a midyear outlook note from Global X.
The bottom line: If megacap companies are best equipped to weather the trade tensions, that could support the broader market, since these giant companies have a larger impact in the market cap-weighted S&P 500.
