Tariffs could least hurt utilities, consumer defensive and health care sectors under various economic scenarios, a new analysis shows.
Morningstar Chief U.S. Economist Preston Caldwell's analysis says those three sectors stand to lose the least valuations even if a bear market emerges. He estimates valuations could drop less than 8% for each of the three.
If a bear market doesn't materialize, the neutral base-case scenario says industrials, communications, energy and real estate also would suffer no worse than an 8% valuation haircut.
The other eight sectors would see declines in valuations from 8% to 20% and even more than 20% in the case of consumer cyclicals and basic materials. Consumer cyclicals face higher costs directly resulting from tariffs. An economic slowdown would cause revenue growth to slow for industrials.
Morningstar's calculations, made on May 5, "view the Consumer Cyclical, Basic Materials, and to a lesser extent, Technology and Financial Services sectors as the most negatively affected by tariffs in a bear-case scenario."
Under a bull-market scenario, all sectors escape with less than 8% valuation declines, but none gain.
In a base-case scenario that takes sectors back before the April 2 tariffs announcement, the technology, financial services, consumer cyclical and basic materials sectors stand to lose 8% or more in their stock valuations. In a bear-market scenario, only the consumer cyclical sector stands to lose more than 20%.
Trump Tariffs By Industry
Breaking it down by industry groups (not necessarily IBD's own groups), software, insurance, restaurants and telecommunication services have the least exposure to tariffs. Some groups in industrials and basic materials also fall into that basket.
Among industry groups facing the highest valuation risks, especially in a bear market, are asset management, vehicles & parts, manufacturing, apparel & accessories, retailers, chemicals and metals and mining.
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Those industries rely heavily on products or parts made in China and other countries. The U.S. has imposed a 25% tariff on auto imports and parts, though those have been pared back at least temporarily.
Morningstar analysts used cash flow models to determine which sectors' valuations are most or least vulnerable to President Donald Trump's volley of tariffs. Most were announced April 2, which is the study's benchmark, although the White House later paused most tariffs.
On May 12, after the Morningstar calculations, Trump temporarily slashed China tariffs from 145% to 30%.
