Why has the S&P 500 been resilient amid new tariff announcements?

Investing.com -- U.S. equities stood their ground in the face of repeated trade tensions and fresh tariff announcements, reaching a new record high last week.

This market resilience, according to Morgan Stanley (NYSE:MS), comes as investors are taking a measured view of the risks, with several factors helping to cushion market sentiment.

First, the current scope of tariff announcements has relatively limited direct cost exposure for most S&P 500 industries.

“Import cost exposure for S&P 500 industries is more limited thus far given the combination of the countries in scope and the exemptions seemingly still in place,” strategists led by Michael J. Wilson said, pointing to U.S. imports from Mexico under the USMCA framework as an example.

Second, higher tariff rates announced on various trading partners are not yet viewed as final. The market appears to be pricing in the possibility that these rates will be moderated or rolled back through ongoing negotiations.

Lastly, tariff-sensitive sectors such as consumer goods have already suffered heavy drawdowns, reducing the likelihood of further downside pressure.

Wilson also highlighted that any material increase in tariffs on China would pose a more significant risk, given both the breadth of industries with exposure and their aggregate market cap, which exceeds 30%.

Another major risk would be if the U.S. were to remove USMCA exemptions for Mexico, thereby exposing more goods to higher duties. Still, at the time of writing, “USMCA compliant goods would be exempt,” according to news reports cited in the note.

“We also think that potential Section 232 tariffs on Semiconductors, in particular, would be a risk,” the strategists added.

Beyond trade policy, improving earnings sentiment has also supported equity performance. The breadth of earnings revisions has turned positive, climbing from -25% in April to +3% now.

The strategists noted that Financials and Industrials have shown strong relative strength on this metric, helping reinforce market stability even as macro uncertainty persists.

Furthermore, as earnings season approaches, earnings per share (EPS) revision dispersion is increasing, which should create a favorable environment for stock selection as reporting progresses, the team said.