Investors breathed a sigh of relief Monday after President Trump confirmed 25% tariffs on imports from Mexico will be suspended for a month. Stocks bounced off their lows of the session as Wall Street bet on the implications the delay could have on the Trump administration’s broader trade strategy.
But the market may still be too optimistic about how Trump's tariff agenda will unfold. Experts warn President Trump is "unabashedly pro tariff” and investors may still be underpricing associated risks.
Read more: The latest news and updates as Trump's tariff deadline approaches
“There is an expectation on the Street that [Treasury Secretary] Scott Bessent is the one running the show … I disagree with that sentiment,” Henrietta Treyz of Veda Partners warned on Yahoo Finance's Catalysts this morning.
And while Mexican tariffs may be delayed for now, Trump has yet to back down on plans to implement a 25% tariff on Canada and an additional 10% on China.
“Tariffs are a negotiating tactic but I’m taking the China tariffs quite seriously,” Treyz added. “It’s a tax on US consumers … It's a very different scenario, very different environment than in 2018.”
It's a risk to the market's valuation, argues Goldman Sachs' David Kostin. In a note to clients, Kostin wrote that rising policy uncertainty will likely weigh on equity valuation multiples, suggesting that the recent uncertainty increase should reduce the forward 12-month P/E multiple by about 3%.
For investors, the Tech sector ( XLK ) is among the most exposed to risk from a geopolitical escalation between the US and China, as analysts warn of a "pretty significant impact" on demand for products.
"The bigger impact is really going to be the impact on end demand. If you think about products that are made in China, it's going to be PCs, smartphones, and consumer electronics," KeyBanc's John Vinh explained to me. "As prices increase, we think there's probably going to be a negative impact to end demand, and ultimately that's going to flow upstream to all the chip companies."
That signals greater downside risk for names like Qualcomm ( QCOM ), Qorvo ( QRVO ), Skyworks ( SWKS ), Intel ( INTC ), and Nvidia ( NVDA ), Vinh warns.
Goldman Sachs' analysis of S&P 500 companies with explicit reported revenue exposure to Greater China of 25% or more includes many of those tech names, along with other consumer-facing firms. Among them are Las Vegas Sands ( LVS ), Wynn Resorts ( WYNN ), and Lam Research ( LRCX ), all of whose shares were under pressure as of midafternoon trading on Monday.
Meanwhile, Evercore's Mark Mahaney sees Amazon ( AMZN ) as most at risk of Trump's tariff playbook, noting the White House's recent rhetoric toward its other largest trading partners.
"Amazon is most at risk ... to the extent that hurts manufacturers and retailers," Mahaney said.
Given the uncertainty, Wall Street pros are advising investors proceed with caution.
Ritholtz Wealth Management’s chief market strategist Callie Cox told me this morning that “sitting in a little bit more cash might make more sense,” while others advise investors look toward “evergreen themes."
“The new economic regime is here with the February 1 tariff announcement,” Global X’s head of investment strategy Scott Helfstein wrote Monday. “Investors may want to look for ports in the geopolitical storm in areas like U.S. infrastructure, defense technology, and U.S. energy infrastructure.”
Seana Smith is an anchor at Yahoo Finance. Follow Smith on X @SeanaNSmith . Tips on deals, mergers, activist situations, or anything else? Email [email protected].