Both the SCOTUS decision and the idea that the White House would implement tariffs through other mechanisms were widely anticipated by US equity investors.
We saw this very clearly over the last few months through betting market data (where expectations that SCOTUS would uphold the tariffs had been fluctuating around 30% since oral arguments in early November) as well as our own conversations with equity investors on the year ahead outlook. It was clear to us from our conversations that the general contours of last week’s developments were being baked in.
“While it’s true that uncertainty is elevated in the near-term, in recent months US public companies have been emphasizing their ability to manage through the evolving tariff landscape despite persistent uncertainty.”
Lori Calvasina, Head, U.S. Equity Strategy, RBC Capital Markets
We’ve kept a close eye on tariff commentary in our transcript reading during the past few earnings seasons. S&P 500 companies have focused on mitigation efforts, including pricing and supply chain adjustments, and, importantly have also continued to acknowledge the dynamic tariff landscape.
This remained unchanged in the latest reporting season – we haven’t read anything indicating companies are not in a place to keep managing through.
That being said, we didn’t see much company commentary specifically on what would happen if IEEPA was overturned; when we expanded our search, we did find some comments from a handful of SMID companies. Those include one company’s comment on a tariff unwind being a pass-through that might not benefit the company in the end, as well as other comments on how the IEEPA tariffs were only a piece of their tariff puzzle, and the general need and desire for certainty.
As the details settle, we will be keeping a close eye on company commentary to gauge potential short-term earnings impacts, potentially on the positive side.
As our FX team has highlighted, the Yale Budget Lab estimates that before the IEEPA tariffs were struck down, consumers faced an overall average effective tariff rate of 16%. Immediately following the IEEPA ruling, the rate fell to 9.1%. After the Section 122 tariffs were imposed, they estimate that rate rose to its current level of 13.7%.
Our FX team has also pointed out that China is expected to see some of the biggest benefit from the new rules in terms of tariff levels, a thought that was echoed by an article in the Financial Times over the weekend. This jumps out to me because early on in the tariff discussion, companies focused on impacts from China in their tariff discussions. And while some of that has likely been mitigated away, its been a big enough issue that it’s worth keeping an eye on.
