Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.
Discover more
Trump’s repeated threats of tariffs has led to investors worrying about higher prices, which potentially may derail the US Fed’s efforts in bringing interest rates lower to spur economic growth.
While uncertainty remains, we are of the opinion that this fear may be blown out of proportion.
Prices will eventually be set based on demand and supply dynamics and more importantly consumers’ spending power. At current price levels, the average consumer is an already stretched one. We do not believe US importers will pass on the entire tariff onto the consumers, as many of them are already grappling with prices that are materially higher than pre COVID levels. Exporters into the US are also likely to find ways to get around this by exporting to another country, before the goods eventually making their way into the US, as some did back in 2017 when certain tariffs were rolled out.
A ground up perspective tells a sobering story that contrasts strongly against still robust looking headline growth and inflation numbers. US retails giants have noted a material shift in purchasing patterns among US consumers, with many already rationalizing and paring back their spending.
Walmart acknowledged that wealthier consumers are adjusting to high prices by turning to discount stores for everyday needs. Even as early as late 2024, Target Corp’s shares plunged by 20% on misses in sales1 and profits estimates as the retailer saw how higher prices were driving price sensitive consumers away.
Another reason why consumption appeared to stay strong in the past few years is because many have resorted to charging more to their credit cards as prices soared. Credit card delinquencies have risen exponentially since the Fed started hiking rates in 2021 and looks set to spike further. This will likely weaken consumption further in the months to come. Consumers will also no longer be able to dip into their now depleted COVID savings.
Revolving credit / Household
Source: Bloomberg. Data as of Dec 2024.
While we are more sanguine on inflation, we are more cautious on US corporates’ fundamentals especially those impacted by the tariffs. Even before factoring in the impact from weakening consumer demand, absorbing the tariffs will result in lower profit margins for US corporates. In short, US corporates pay the tariffs, as what Trump said previously.
Beyond the detrimental effects on trade cooperation and diplomacy, the negative impact from tariffs impacts the cost of living at every level of society, overshadowing concerns of a rise in inflation. While Trump has been, and will continue, to use tariffs as leverage to increase his bargaining power in trade negotiations, rhetoric eventually has to give way to practical outcomes.
1 Source: https://www.cnbc.com/2024/11/20/target-tgt-q3-2024-earnings.html
Source: Company data retrieved from company annual reports or other such investor reports. Financial metrics and valuations are from FactSet and Bloomberg. As at 28 February 2025 or otherwise noted.
Read our latest insights
Important Information
The information contained within this material is generic in nature and does not contain or constitute investment or investment product advice. The information has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this material.
This material has been prepared for general information purpose. It does not purport to be comprehensive or to render special advice. The views expressed herein are the views of the writer at the time of issue and not necessarily views of FSI. Such views may change over time. This is not an offer document, and does not constitute an investment recommendation. No person should rely on the content and/or act on the basis of any matter contained in this material without obtaining specific professional advice. The information in this material may not be reproduced in whole or in part or circulated without the prior consent of FSI. This material shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction.
Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.
In Hong Kong, this material is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. In Singapore, this material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors, FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners are the business names of First Sentier Investors (Hong Kong) Limited. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).
First Sentier Investors (Hong Kong) Limited and First Sentier Investors (Singapore) are part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.
MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.
 |  |
|---|