In short
Why U.S. stocks have stayed resilient despite new tariff announcements, and what other policy and earnings factors could offset tariff headwinds.
Guest backgrounds
No guest is interviewed; host is Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist.
Key claims
Tariff import cost exposure for S&P 500 industries is limited by deferrals/exemptions (e.g., USMCA-compliant imports from Mexico). Markets view recent tariff rates as likely final, effectively a ~10% consumption tax funding Treasury revenue. Pre-stocked inventory delays cost-of-goods-sold impacts. Earnings revision breadth rebounded from -25% mid-April to +3%, supporting the rally. The “One Big Beautiful Bill” lowers cash earnings tax rates for R&D and capital-goods spenders (potentially toward ~13% from 20%), removes the 2026 foreign-derived intangible income risk (~3% effective tax rate increase), and could reduce digital service taxes (Canada rescinding its DST for U.S. firms).
Notable examples
S&P 500 earnings revision breadth; sectors with strongest relative positive revisions: financials, industrials, software; Canada’s digital service tax rescission.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOAnalyzing Market Resilience Amid Tariffs
0:17 to 3:24
Discussion on the factors contributing to stock market resilience despite tariffs.
“Well, first, the import cost exposure for S &P 500 industries is more limited given the deferrals and exemptions still in place like the USMCA-compliant imports from Mexico.”
Transcript
Automatic transcript. May contain errors.0:00Mike Wilson:Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist. Today on the podcast, I'll be discussing why stocks remain so resilient. It's Monday, July 14th at 1130 a.m. in New York. So let's get after it. Why has the equity market been resilient in the face of new tariff announcements? Well, first, the import cost exposure for S &P 500 industries is more limited given the deferrals and exemptions still in place like the USMCA-compliant imports from Mexico. Second, the higher tariff rates recently announced on several trading partners are generally now perceived to be the final rates as negotiations progress.
0:41Mike Wilson:I continue to believe these tariffs will ultimately end up just looking like a 10 % consumption tax on imports that generates significant revenue for the Treasury. And finally, many companies pre-stocked inventory before the tariffs were levied, and so the higher-priced goods have not yet flowed through the cost of goods sold. Furthermore, with the market's tariff concerns having peaked in early April, the market is looking forward and focused on the data it can measure. On that score, the dramatic V-shaped rebound in earnings revision breadth for the S &P 500 has been a fundamental tailwind that justifies the equity rally since April in the face of continued trade and macro uncertainty.
1:19Mike Wilson:This gauge is one of our favorites for predicting equity prices, and it dropped a negative 25 % in mid-April and is now positive 3%. The sectors with the most positive earnings revisions breadth relative to the S &P 500 are financials, industrials, and software. Three sectors we continue to recommend due to this dynamic. The other more recent developments helping to support equities is the passage of the One Big Beautiful Bill. While this bill does not provide incremental fiscal spending to support the economy or lower statutory tax rates, it does lower the cash earnings tax rate for companies that spend heavily on both R &D and capital goods.
1:58Mike Wilson:Our global tax team believes we could see cash tax rates fall from 20 % today back toward the 13 % level that existed before some of these benefits in the Tax Cuts and Jobs Act that expired in 2022. This benefit is also likely to jumpstart what has been an anemic capital spending cycle for corporate America, which could drive both higher GDP and revenue growth for the companies that provide the type of equipment that falls under this category of spending. Meanwhile, the foreign-derived intangible income is a tax incentive that benefits U.S. companies earning income from foreign markets. It was designed to encourage companies to keep their intellectual property in the U.S.
2:38Mike Wilson:rather than moving it to countries with lower tax rates. This deduction was scheduled to decrease in 2026, which would have raised the effective tax rate by approximately 3%. That risk has been eliminated in the big, beautiful bill. Finally, the digital service tax imposed on online companies that operate overseas may be reduced. Late last month, Canada announced that it would rescind its digital service tax on the U.S. in anticipation of a mutually beneficial comprehensive trade agreement with the U.S. This would be a major windfall for online companies, and some see the potential for more countries, particularly in Europe, to follow Canada's lead as trade negotiations with the U.S.
3:17Mike Wilson:continue. Bottom line, while uncertainty around tariffs remains high, there are many other positive drivers for earnings growth over the next year that could more than offset any headwinds from these policies. This suggests the recent rally in stocks is justified and that investors may not be as complacent as some are fearing. Thanks for tuning in. I hope you found it informative and useful. Let us know what you think by leaving us a review. If you find thoughts on the market worthwhile, tell a friend or colleague to try it out. The preceding content is informational only and based on information available when created.
3:53It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you. Thank you.
From the publisher
Stocks hold steady as tariff uncertainty continues. Our CIO and Chief U.S. Equity Strategist Mike Wilson explains how policy deferrals, earnings resilience and forward guidance are driving the market.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing why stocks remain so resilient.
It's Monday, July 14th at 11:30am in New York.
So, let’s get after it.
Why has the equity market been resilient in the face of new tariff announcements? Well first, the import cost exposure for S&P 500 industries is more limited given the deferrals and exemptions still in place like the USMCA compliant imports from Mexico. Second, the higher tariff rates recently announced on several trading partners are generally not perceived to be the final rates as negotiations progress. I continue to believe these tariffs will ultimately end up looking like a 10 percent consumption tax on imports that generate significant revenue for the Treasury. And finally, many companies pre-stocked inventory before the tariffs were levied and so the higher priced goods have not yet flowed through the cost of goods sold.
Furthermore, with the market’s tariffs concerns having peaked in early April, the market is looking forward and focused on the data it can measure. On that score, the dramatic v-shaped rebound in earnings revisions breadth for the S&P 500 has been a fundamental tailwind that justifies the equity rally since April in the face of continued trade and macro uncertainty. This gauge is one of our favorites for predicting equity prices and it troughed at -25 percent in mid-April. It’s now at +3 percent. The sectors with the most positive earnings revisions breadth relative to the S&P 500 are Financials, Industrials and Software — three sectors we continue to recommend due to this dynamic.
The other more recent development helping to support equities is the passage of the One Big Beautiful Bill. While this Bill does not provide incremental fiscal spending to support the economy or lower the statutory tax rate, it does lower the cash earnings tax rates for companies that spend heavily on both R&D and Capital Goods.
Our Global Tax Team believes we could see cash tax rates fall from 20 percent today back toward the 13 percent level that existed before some of these benefits from the Tax Cuts and Jobs Act that expired in 2022. This benefit is also likely to jump start what has been an anemic capital spending cycle for corporate America, which could drive both higher GDP and revenue growth for the companies that provide the type of equipment that falls under this category of spending.
Meanwhile, the Foreign-Derived Intangible Income is a tax incentive that benefits U.S. companies earning income from foreign markets. It was designed to encourage companies to keep their intellectual property in the U.S. rather than moving it to countries with lower tax rates. This deduction was scheduled to decrease in 2026, which would have raised the effective tax rate by approximately 3 percent. That risk has been eliminated in the Big Beautiful Bill.
Finally, the Digital Service Tax imposed on online companies that operate overseas may be reduced. Late last month, Canada announced that it would rescind its Digital Service Tax on the U.S. in anticipation of a mutually beneficial comprehensive trade arrangement with the U.S. This would be a major windfall for online companies and some see the potential for more countries, particularly in Europe, to follow Canada’s lead as trade negotiations with the U.S. continue.
Bottom line, while uncertainty around tariffs remains high, there are many other positive drivers for earnings growth over the next year that could more than offset any headwinds from these policies. This suggests the recent rally in stocks is justified and that investors may not be as complacent as some are fearing.
Thanks for tuning in; I hope you found it informative and useful. Let us know what you think by leaving us a review. And if you find Thoughts on the Market worthwhile, tell a friend or colleague to try it out!