The market's wild recovery on Wednesday afternoon was driven by President Donald Trump temporarily pausing tariff increases on countries all around the world, except China. A 10% blanket tariff will still be in place, but the bigger tariffs that were expected to hit countries like Vietnam, Cambodia, and Indonesia, where many shoes and kids toys are made, will be in place.
What seems to have been forgotten in that bounce was that tariffs are still higher than they were at the start of the year and the tariff on imports from China would be an astounding 145%. On top of the baseline tariffs and China tariffs, Trump only paused the more extensive tariffs, so yesterday's pop may have overestimated the ultimate costs companies would face.
Some of the biggest movers were in retail with Boot Barn Holdings (BOOT +0.74%) falling as much as 9%, Deckers Outdoor (DECK -0.57%) dropping 8.3%, Hasbro (HAS -0.49%) falling 9.8%, Mattel (MAT +1.53%) off 10.1%, and Nike (NKE -3.64%) declining 11.9% at its low.
NYSE: NKE
Key Data Points
The tariff game goes on
What's become increasingly clear to the market is that Trump is insistent on higher tariffs on imports to the U.S. The details of those tariffs may change from what was announced on "Liberation Day," but the theme is the same.
The escalation with China is likely troubling for companies that produce in China or would like it to be a low-cost option. It's possible there's a negotiated solution there, but given the current state and the main characters of this trade war, it could have a protracted impact.
The double whammy for consumer goods companies
For these companies, the impact could be twofold.
First, tariffs would be a direct cost they would need to either pass on to customers or absorb in their margins. That could put pressure on earnings for the foreseeable future.
The second, and potentially more important, impact will be to the economy overall. Higher tariffs and higher costs could drive the U.S. economy into a recession and that wouldn't be good for sales, margins, or the multiples investors are willing to pay for stocks.
An uncertain future
Long-term investors can certainly see this as a buying opportunity with the caveat that shares can always go lower if the economy gets worse or earnings fall. But dollar-cost averaging when uncertainty is high is a great way to drive long-term returns.
That said, it's also possible the market sinks as economic data and earnings guidance for the rest of 2025 are announced over the next few weeks. Companies will be telling investors what they think about the future and it may not be bright given the tariff uncertainty and weak consumer sentiment.
The only thing that's certain right now is uncertainty related to tariffs and the economy. But it's clear the market is pushing back against higher import costs and the message may be working. But expect volatility to rule the day, even for the best consumer goods companies in the world, because there will likely be a negative impact on earnings in 2025.
