The sweeping tariffs underpinning President Donald Trump’s economic policy may have gone from a headwind to a tailwind for the stock market, with the Supreme Court’s decision to unwind them setting the stage for a potential earnings boon for some companies.
Analysts were forced to rip up 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 the president lacked 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 swath of repayments took place in May, with $22 billion being refunded, according to the Treasury Department. That amount was roughly equal to the tariffs taken during that month.
Those refunds and others on the way 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 skeptical, including ourselves,” Kwon said of the positive effect of the refunds. “We were skeptical that those checks will 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 recognized 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 started. Some may even account for them as earnings, the analyst added.
Ken Mahoney, chief executive officer of the Mahoney Asset Management, views the refunds as a legitimate tailwind to earnings. In his view, the repayments are reversing the costs that companies had baked into 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 with consensus earnings estimates that have yet to reflect the refunds. This creates the potential for positive estimate revisions and earnings beats over the next few quarters.
One Off
However, Mahoney stresses that these rebates should be mostly seen as a one-time normalization instead of a recurring earnings driver. It’s the one-time nature that has created some skepticism among market participants, who do not see them providing that much of a boost.
Bob Lang, chief strategist at Explosive Options, acknowledges repayments are a “large amount” but doesn’t 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,” said Sette. “But tariffs as a theme had been already 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 handled. Bloomberg Intelligence’s 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 lifting gross profit or being left off balance sheets entirely.
For example, while Capri Holdings Ltd. recorded a $40 million refund and lifted its gross profit by a similar amount, Steven Madden Ltd. excluded the benefit from adjusted results and guidance. This, Gordon and Aitken noted, highlights an issue with 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 AI semiconductor and infrastructure trade, the tariffs will act as an impetus for slightly broadening the market, especially paired with oil prices.
And while the refunds are one-off in nature, they still act like a “nice tailwind” for corporate earnings. As Kwon said: it’s not just accounting earnings, but cash earnings.
Outside of that, the repayments can also be a tailwind for the economy, Kwon noted. Some companies are discussing using the refunds to alleviate inflation and concerns the consumer may have.
“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 do like a special dividend,” Kwon added. “So I think it’s gonna be a pretty big tailwind for the market in the second of the year.”
Leon writes for Bloomberg.
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