Stocks and tariffs

Big price moves—both up and down—have many stock investors expressing some concerns, as the potential impact of new tariff policies plays out across all parts of the market to varying degrees.

Which sectors are most likely to be potentially impacted? No one knows for sure while tariff negotiations play out. But here’s how some Fidelity sector portfolio managers have positioned their funds in the wake of recent market volatility.

Tech and communication services

A lot of uncertainty surrounds what had been, far and away, the top-performing sectors over the last couple years. Artificial intelligence (AI) has been a primary driver for the technology and communication services sectors, with semiconductor companies at the forefront of this investing theme. But tariff policy uncertainty has added a layer of complexity that AI investors should consider. 

“The semi supply chain and manufacturing process is complex, given the number of countries involved in the different stages of manufacturing chips, which complicates any potential tariff policies and their impact on the industry,” adds Adam Benjamin, portfolio manager at Fidelity. “Aside from future potential tariff packages, I’m also keeping an eye on implications for different semiconductor end markets, like autos, and how that may impact demand for semis.”

While tariff uncertainty remains over these high-growth sectors, whose valuations have expanded more than others in recent years, investors could prepare for continued volatility.

Health care

Much as tariff uncertainty is a major factor for tech and comm services, so too is it for health care sector investors. “Med tech and life science drug manufacturers could be among the industries most impacted by tariffs,” according to Eddie Yoon, portfolio manager at Fidelity.

Karim Suwwan, another Fidelity portfolio manager, notes the effects that new tariff policies could have on large-cap pharma stocks: “They weren’t included in this round of tariffs, but it’s possible that large-cap pharma could be subjected to them in the near future. Many large-cap pharma companies house their intellectual property offshore and 'import' it into the US.”

It's worth noting that health care appears to have benefited from being a defensive sector thus far this year. It's roughly flat year to date, compared with a more than 9% decline for the S&P 500, as of mid April. Nevertheless, with the potential impact of tariffs uncertain, health care investors may need to be selective.

Industrials

Tariffs tend to be inflationary, and that can benefit many industrials companies. “Generally speaking, industrials companies have historically been able to pass higher costs along to their customers and have seen higher profitability in previous inflationary environments,” says David Wagner, portfolio manager at Fidelity.

Additionally, there may be long-term benefits for the industrials sector if tariffs end up driving more manufacturing activity to the US. Moreover, the latest round of tariffs preserved the United States-Mexico-Canada Agreement (USMCA) exemptions for Canada and Mexico. “Many of these companies shifted a lot of their manufacturing bases to those countries over the last couple of years,” Wagner comments. “That being said, confidence and clarity on policy is important for the sector.”

Given how capital-intensive most companies in the industrials sector are, as long as there is some uncertainty, many industrials may experience volatility over the short term—even if they generally may end up being a tariffs beneficiary over the long run.

Energy

One of the worst-performing sectors thus far this year, energy stocks have been driven lower largely by oil prices that have fallen substantially from their near-term peak in mid-January. Recession worries and a potential drop in energy demand have cut oil prices by roughly 15% so far in 2025.

“The main impact to oil prices could be the anticipation of demand weakness from a tariff-driven recession,” affirms Kristen Dougherty, co-manager of a Fidelity portfolio. “With that said, potential supply offsets—such as OPEC returning barrels more slowly and a supply-related slowdown in shale production in the next 3 to 6 months—could help keep prices from dropping much further. Also, imports of oil, gas, and refined products into the US are exempt from the tariffs, so there is no direct impact to domestic supply,” Dougherty says.

While the energy sector may be less directly affected by tariffs, it could be subject to knock-on effects of tariff policy that impact economic activity.

Consumer discretionary and staples

Consumer sentiment has dipped in recent months on expectations for higher prices, and the consumer reaction to any tariff-induced price increases could be critical for this sector.

“A major concern is that inflation will increase and squeeze out discretionary spending,” says Ben Shuleva, portfolio manager at Fidelity. Shuleva is navigating market volatility by identifying companies that may not be as affected by tariff policy. “Companies in the consumer staples sector that may have an advantage could be those with primarily US-based supply chains,” Shuleva says.

For consumer discretionary stocks, investors may have to be cautious while tariff uncertainty persists. “Apparel and footwear companies, for example, largely have supply chains based in Asia that could be impacted," notes Julia Pei, co-manager of a Fidelity portfolio. "Vietnam and China encompass about 50% of footwear and apparel supply chains, and thus the potential hit to earnings per share for related companies if consumers pull back due to higher prices could be significant,” Pei says.

Retailers of aftermarket auto parts are a consumer industry that may be able to avoid potential impacts from tariff policies. "They tend to have pricing power and are relatively insulated from tariffs," according to Amy Ge, Fidelity portfolio manager. "Automotive original equipment manufacturers (OEMs) and automotive suppliers, which supply and manufacture new cars, would be more directly exposed to tariffs," Ge adds. 

With new tariff policies having recently gone into effect, the impact on consumers may not be realized yet. As a result, investors in these sectors may need to monitor trends in consumer sentiment, consumer spending, and most importantly, consumer company earnings to get a sense of the full impact.

Investing implications

The impact of tariffs has spread throughout the market. But initial readings from Fidelity fund managers suggest active management may be particularly important while there is heightened uncertainty. For long-term investors, broad diversification across both asset classes (e.g., stocks, bonds, etc.) and within asset classes (e.g., across sectors) can be an effective strategy for uncertain times.