Tariffs linger over earnings, even as companies get used to them

• Tariffs have increased domestic goods prices by 4.3 percentage points and imported goods by 5.8 percentage points compared to pre-tariff levels, according to Harvard researchers tracking 360,000 products.
• Procter & Gamble raised U.S. prices 2% to 2.5% to offset tariffs but reported a fifth consecutive quarterly margin decline, while McCormick saw gross margins drop 130 basis points year-over-year.
• Amazon CEO noted 'lower pricing' on the e-commerce platform as sellers deplete inventories brought in to front-run tariffs, while companies like Tractor Supply plan 'surgical' price increases given value-focused consumer behavior.

Market Summary: Tariff Pressures Challenge Corporate Margins in Earnings Season

Key Developments

U.S. companies are signaling tariff-related margin pressure as earnings season progresses, despite earlier assurances that trade barriers were "manageable." Major bellwethers including Procter & Gamble, Fastenal, and 3M have flagged concerns about maintaining profitability amid rising input costs.

Company-Specific Impacts

Procter & Gamble implemented 2-2.5% price increases in its largest U.S. market and reported a fifth consecutive quarterly margin decline. McCormick & Co saw margins drop 130 basis points year-over-year, with approximately 50% of incremental tariffs still affecting operations. Levi Strauss expects margins to contract by 0.7%, up from previous 0.5% estimates, while warning of weakening consumer sentiment.

Amazon CEO Andy Jassy noted sellers are experiencing inventory depletion as they work through pre-tariff stockpiles. Tractor Supply plans "surgical" price increases as value-conscious consumers resist further hikes.

Market Data

Harvard researchers tracking 360,000 products found domestic goods cost 4.3 percentage points more than pre-tariff levels, while imported goods increased 5.8 percentage points. The effective U.S. tariff rate reached 14.4% by mid-November—the highest in 85 years, according to Yale Budget Lab.

Consumer Dynamics

Lower- and middle-income consumers show particular price sensitivity, with analysts warning most buyers "won't take kindly to further hikes." While overall consumer spending remains stable, purchasing patterns favor value items.

Outlook

Over 100 S&P 500 companies report next week, including General Motors, Caterpillar, Colgate-Palmolive, and Kimberly-Clark. A potential Supreme Court ruling in February could challenge Trump's tariff authority under IEEPA, though any resolution would likely take years.