As Trump's tariffs bite, investors should ensure the companies they own have strong fundamentals

Business Times

3 days ago

[SINGAPORE] It seemed like Groundhog Day again when US President Donald Trump unveiled revised reciprocal tariffs on imports from dozens of countries last Thursday (Jul 31).
The adjusted rates came just one day before the previously announced reciprocal tariffs were due to kick in; the new duties will take effect only on Aug 7.
To me, it initially appeared that Trump was once again delaying the full implementation of his tariffs while maintaining pressure on America's trading partners to open their markets.
Some observers think Trump might be reaching his endgame on the country-specific tariffs, though. This could be good news. The revised tariff rates for many countries are, with a few notable exceptions, below the rates announced on Apr 2.
For instance, the reciprocal tariffs on the European Union, Japan and South Korea are now all down to 15 per cent, from 20 per cent, 24 per cent and 25 per cent, respectively. India is down to 25 per cent from 26 per cent.
Closer to home, reciprocal tariffs on Cambodia, Indonesia and Malaysia are now all down to 19 per cent, from 49 per cent, 32 per cent, 24 per cent, respectively. The reciprocal tariff on the Philippines is now also 19 per cent, although this is up from the 17 per cent announced on Apr 2. Vietnam is down to 20 per cent, from 46 per cent previously.
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The bad news, however, is that these revised tariffs would still add to the squeeze on global trade when they are implemented. By some estimates , the revised tariffs will push the average US tariff rate up to 15.2 per cent – from 13.3 per cent currently, and from only 2.3 per cent back before Trump took office.
The economic impact of higher tariffs was blunted in the first half of 2025 by US importers front-loading their orders. Market sentiment has also been buoyed by massive investment in the artificial intelligence field.
The remaining months of the year will probably be tougher for investors. Trump's tariffs are likely to create a demand shock in Asia, resulting in slower growth and deflation. On the other hand, the US could suffer a supply shock that results in slower growth as well as higher inflation – leading to politically charged policy dilemmas.
Politics and policymaking
Last week, Trump ramped up his campaign to oust Federal Reserve chair Jerome Powell for refusing to cut rates, insinuating during a visit to the Fed's headquarters that the cost of renovating its buildings was out of control.
Trump also fired the commissioner of the US Bureau of Labor Statistics (BLS) last week, after US job numbers for July came in weaker than expected . The BLS said on Aug 1 that total nonfarm payroll employment increased by only 73,000 last month.
Adjustments for the previous two months were also larger than normal. Revised data showed US employers added only 19,000 jobs in May and 14,000 jobs in June, versus the previously reported 144,000 jobs and 147,000 jobs, respectively, for the two months.
These political overtones could make it all the more complicated for investors to navigate the markets in the months ahead, as the full impact of Trump's tariffs is felt on growth, inflation and corporate earnings.
At its policy meeting on Jul 29-30, the Fed decided to hold the target range for the federal funds rates unchanged, at between 4.25 per cent and 4.5 per cent. Two members of the 12-person rate-setting committee – Michelle Bowman and Christopher Waller – preferred a 25-basis-point cut and voted against the decision.
This was reportedly the first time since 1993 that two members dissented at a single meeting.
A third member, Adriana Kugler, was absent and did not vote. On Aug 1, the Fed said Kugler had submitted her letter of resignation to Trump and would step down on Aug 8. She has served as a governor of the Fed since 2023.
Tariff impact in 'early days'
Powell said during the post-meeting press conference that the impact of the tariffs on inflation is not only uncertain, but is probably still in its 'early days'.
'What we're seeing now is substantial amounts of tariff revenue being collected, on the order of US$30 billion a month,' he said, adding that most of this is currently being paid by companies that are 'upstream from the consumer'.
Powell went on to say that many companies have indicated their intention to eventually push the cost of the tariffs onto their customers. 'But, you know, the truth is they may not be able to in many cases.'
The state of the US labour market is also something of a puzzle. While the pace of job creation has been weakening, the unemployment rate in July was little changed from previous months, at 4.2 per cent.
'What that's telling you is that demand for workers is slowing, but so is the supply,' Powell said. He added, 'Because of immigration policy, really, the flow into our labour force is just a great deal slower.'
This suggests underlying weakness in the seemingly robust US economy. 'I think you've got downside risks in a world where unemployment is being held down because both demand and supply are declining. And, I think that it's worth paying close attention to it,' Powell said.
Less forgiving markets
These macro concerns do not appear to be hurting the US corporate earnings for now, though.
On Aug 1, financial data provider FactSet said 82 per cent of the S&P 500 companies that have reported their results for Q2 2025 delivered positive earnings-per-share (EPS) surprises. Also, 79 per cent achieved positive revenue surprises.
The market is, however, rewarding positive surprises slightly less than it has in the past, and punishing negative surprises more severely.
S&P 500 companies that have reported positive earnings surprises for Q2 2025 have seen an average stock price increase of 0.9 per cent over the period spanning two days before their earnings release and two days after.
This is below the five-year average of a 1 per cent increase.
On the other hand, S&P 500 companies that reported negative earnings surprises for Q2 2025 have seen an average price decrease of 5.6 per cent – versus a five-year average price decline of 2.4 per cent.
Among the notable losers last week was Apple, which saw its shares tumble 5.4 per cent despite reporting financial numbers that topped expectations .
The S&P 500 ended last week 2.4 per cent lower. The Nasdaq 100 was down 2.2 per cent.
The Singapore market was equally unforgiving last week, with the Straits Times Index suffering a 2.5 per decline.
Among the notable losers was Seatrium – which ended last week 5.4 per cent lower, despite reporting sharply higher revenue and earnings for H1 2025 and drawing a line under its past involvement in a corruption scandal in Brazil.
Singapore Airlines fell 9.9 per cent during the week, after reporting a steep slump in earnings for the quarter to Jun 30 that seemed to catch analysts off-guard and sparked a wave of 'sell' recommendations .
Then, there was OCBC – the first of the three local banks to report financial numbers for H1 2025 – which suffered narrower net interest margins as interest rates sank. OCBC ended last week 2.3 per cent lower.
DBS and UOB, which are both scheduled to report their H1 2025 numbers on Aug 7, ended last week down 3 per cent and 2.9 per cent, respectively.
As Trump's tariffs begin to bite, investors should carefully parse the financial statements of companies in their portfolios to ensure their micro fundamentals are strong enough to weather the tough months ahead.