Trump tariff defeat is market tailwind 'no one is talking about'

Analysts say refunds of tariffs struck down by the US Supreme Court could boost corporate earnings, cash flows and shareholder returns, even if the benefit is one-off

The sweeping tariffs underpinning US President Donald Trump's economic policy may have gone from being a headwind to a tailwind for the stock market, with the US Supreme Court's decision to strike them down setting the stage for a potential earnings boost for some companies.

 

Analysts were forced to revise their models and downgrade recommendations after Trump unveiled the so-called "Liberation Day" tariffs in April 2025. Those duties were struck down in February, when the Supreme Court ruled that the president lacked the authority to use the International Emergency Economic Powers Act to impose the levies.

 

On the hook for an estimated $166 billion, the Trump administration began processing refunds in April. The first round of repayments took place in May, with $22 billion refunded, according to the Treasury Department. That amount was roughly equal to the tariffs collected during the month.

 

 

Those refunds, and others expected to follow, are a tailwind for certain stocks that "nobody is talking about" as the second half of the year gets underway, according to Ohsung Kwon, an equity analyst at Wells Fargo & Co.

 

"I don't think anybody really picked up on it yet, and people were sceptical, including ourselves," Kwon said of the positive effect of the refunds. "We were sceptical that those cheques would actually get issued, but it's actually happening."

 

Around 40 companies — including Apple Inc., Caterpillar Inc., Dollar Tree Inc. and Tesla Inc. — discussed refunds in the first quarter, Kwon said in a note published last week. However, only eight recognised them as a benefit, including Ford Motor Co., General Motors Co. and Under Armour Inc.

 

The number is not high, Kwon acknowledged, but he expects the list to grow as the second quarter gets underway. Some companies may even recognise the refunds in earnings, he added.

 

Ken Mahoney, chief executive officer of Mahoney Asset Management, views the refunds as a legitimate tailwind for earnings. In his view, the repayments are reversing costs that companies had already absorbed in their operations.

 

"For firms that expensed those tariffs but haven't yet incorporated refunds into guidance, the cash recovery can provide an upside surprise to earnings, margins and, in some cases, free cash flow," Mahoney said.

 

The bigger impact, he added, may be for companies whose consensus earnings estimates have yet to reflect the refunds. This creates the potential for positive estimate revisions and earnings beats over the next few quarters.

 

However, Mahoney stressed that these rebates should largely be viewed as a one-off normalisation rather than a recurring earnings driver. It is this one-time nature that has created scepticism among market participants, who do not expect them to provide a significant boost.

 

Bob Lang, chief strategist at Explosive Options, acknowledged that the repayments are a "large amount" but does not see them as a "difference maker". Giuseppe Sette, president of Reflexivity, shares that view.

 

"Refunds will act as a salve for stocks bruised by the recent volatility," Sette said. "But tariffs as a theme had already been forgotten by now in the market, and a one-off intervention is unlikely to move markets meaningfully."

 

There is also the issue of how the refunds are accounted for. Bloomberg Intelligence analysts Stuart Gordon and Deborah Aitken see the matter becoming an "earnings-quality test" in the second quarter, adding that repayments could be reflected in "vastly different ways", including boosting gross profit or being left off balance sheets entirely.

 

For example, while Capri Holdings Ltd. recorded a $40 million refund and increased its gross profit by a similar amount, Steven Madden Ltd. excluded the benefit from adjusted results and guidance. This, Gordon and Aitken noted, highlights a lack of clarity around the refunds.

 

"Despite the court ruling, uncertainty over the timing, process and ultimate likelihood of reimbursement continues to limit broader recognition of tariff-related recoveries," Gordon and Aitken wrote in a note published on Thursday.

 

Still, Wells Fargo's Kwon sees the refunds acting as a tailwind. While he continues to prefer the artificial intelligence semiconductor and infrastructure trade, he believes the refunds, together with lower oil prices, could help broaden the market.

 

Although the refunds are one-off in nature, they still provide "a nice tailwind" for corporate earnings. As Kwon put it, the benefit is not just in accounting earnings but also in cash earnings.

 

Beyond that, the repayments could also support the broader economy, Kwon said. Some companies are considering using the refunds to ease inflationary pressures and address consumer concerns.

 

"Also, with that extra cash, I think a lot of these companies will use that to fund capex or even do some buybacks or increase dividends or maybe pay a special dividend," Kwon added. "So I think it's going to be a pretty big tailwind for the market in the second half of the year."