Election day came and went. Americans voted to change paths

The incoming administration proposed 200% tariffs on imports from Mexico and 60% to 100% on goods imported from China. We believe the planned tariffs will have a massive impact on the stock market. And investors would do well to prepare. We are not alone in our concerns.

Giant retailer Walmart said that it will raise prices if the tariffs hit. CFO David Rainey told CNBC:

“We never want to raise prices. Our model is everyday low prices. But there probably will be cases where prices will go up for consumers.

“We’ve been living under a tariff environment for seven years, so we’re pretty familiar with that. Tariffs, though, are inflationary for customers, so we want to work with suppliers and with our own private brand assortment to try to bring down prices.”

Retail stores will be hardest hit. In addition to Walmart, chains like Dollar Tree and Five Below import most of their stock. Shoemakers like Crocs and Sketchers will be hit hard. Auto parts companies like AutoZone will respond by raising prices as well.

Clothing companies like Columbia Sportswear, Steve Madden, and American Eagle Outfitters are likely to suffer higher prices too.

Home improvement stores will see higher prices. Lowe’s CFO Brandon Sink agrees with Rainey. He said that tariffs will increase costs of goods.

All these companies are in full strategy mode. They want to diversify their imports across many countries. But the problem is that countries like Mexico and China built out industries to supply U.S. goods.

From an investor point of view, we need to plan for earnings declines. Either these companies eat the tariffs, or they make their goods more expensive. The first case will reduce earnings to cover the taxes. The second case will impact sales…and reduce earnings.

Either way, some high-flying companies will see their share prices decline. That’s already starting to happen. Shoemaker Crocs (Nasdaq: CROX) took a huge hit after the election:

This is a retailer identified by Bank of America analysts as particularly exposed to the new tariffs. On the other hand, giant retailer Walmart (NYSE: WAL) has not flinched…yet:

We believe the incoming administration will enact tariffs. It was a hallmark of the previous term. And if Walmart takes a big hit, it could lead to a much broader impact. The entire stock market is ripe for a pullback, as you can see from the S&P 500 index here:

And again, we aren’t alone. According to the Financial Times, a record number of U.S. executives are selling shares in their companies:

That’s a signal we can’t afford to ignore.

For the Good,

The Mangrove Investor Team