The Sectors Strategists Say Will Do Well, Poorly in a Trade War

The S&P 500 is down nearly 10% in two trading days following the Wednesday announcement of tariffs as high as 49% on U.S. trading partners.

Equity markets fell another 4% to 5% Friday after China announced 34% retaliatory tariffs on U.S. exports. Friday’s drop came on the heels of a rout on Thursday that produced the worst one-day losses since 2020 as uncertainty set in.A flight-to-quality trade pushed investors to U.S. Treasurys, driving the yield on the 10-year bond below 4% for the first time since early October.

In a note to clients, Wedbush Securities analyst Daniel Ives warned that the announced tariffs could set the U.S. tech industry back a decade while reducing tech earnings by at least 15% and raising costs by nearly 50% for consumers.

“The economic pain that will be brought by these tariffs are hard to describe and can essentially take the U.S. tech industry back a decade in the process while China steamrolls ahead,” Ives wrote. “50% China tariffs, 32% Taiwan tariffs, would essentially cause a shut-off valve from the U.S. tech landscape and in the process cause [the price of] every electronic to go up 40%-50% for consumers.”

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The automotive industry is also expected to be hit hard by tariffs. With a separate 25% tariff on automotive imports already in effect, Cox Automotive, which runs AutoTrader and Kelley Blue Book, stated it anticipates higher prices, lower new vehicle sales and less availability of cheaper cars, which in turn will increase the prices of used cars.

Deutsche Bank expects used car prices to increase between 7% and 19%, and while obviously not good for consumers, bank analysts foresee a silver lining for downstream companies like rental and used car companies, which could benefit from higher prices on resale vehicles.

The tariffs also are producing headwinds for the retail sector, according to Deutsche Bank.

“Our key take from Wednesday’s announcement is that tariffs will likely pose a significant profitability headwind to virtually the entire U.S. retail sector. While there was uncertainty around the magnitude of tariffs and the list of countries heading into the announcement, we think the outcome—and broad-based nature of the tariffs— was far worse than expected,” wrote Deutsche Bank analyst Krisztina Katai.

The administration of President Donald Trump is also considering more sector-specific tariffs, including on semiconductors, pharmaceuticals and other critical minerals, according to J.P. Morgan Asset Management.

The Winners

Which sectors can be defensive against a trade war? “Health care services, which includes hospitals and residential care facilities, are supporting employment growth [and are] likely less sensitive to tariffs,” wrote Jeffery Roach, an economist at LPL Financial, in a report.

J.P. Morgan Asset Management wrote that domestically oriented companies and companies that are service-oriented and that have higher pricing power are likely to fare better.