Retailers may breathe a sigh of relief as the US and China signal a truce in their trade war.
Telsey Advisory Group’s Joe Feldman told Yahoo Finance the move “may have just saved the Christmas season,” as retailers can bring in the inventory now and “start to get product in.”
On Monday, President Trump announced a 90-day pause that will reduce US tariffs on Chinese goods to 30% from 145%. China, in turn, will lower its tariffs on US goods from 125% to 10%.
This brings the new deadline to Aug. 10, which CFRA analyst Arun Sundaram calls a “positive development for retailers.”
Many companies “are just beginning to prepare for critical selling periods like back-to-school and the holiday season,” Sundaram told Yahoo Finance.
Read more: The latest news and updates on Trump’s tariffs
Sundaram warned the surge in imports over the next 90 days “could put upward pressure on ocean freight and transportation costs” and cause “supply chain bottlenecks reminiscent of the 2021 to 2022 global supply chain crisis.”
However, it will likely be “less severe given the unprecedented nature of the pandemic-driven demand shift.”
The big unknown is what happens after August 10 — another tariff change can compound issues on top of higher shipping costs and supply chain complications.
On Monday, top retail stock gainers include Amazon (AMZN), Target (TGT), Best Buy (BBY), Dollar Tree (DLTR), Five Below (FIVE), Wayfair (W), and Dick’s Sporting Goods (DKS).
“The discretionary oriented retailers are getting a big boost today, especially the ones that have some decent exposure to China … it went from an impossible situation with 145% tariff to a challenging but manageable situation at 30% even if it’s for only 90 days,” Feldman said.
For a company like Best Buy, “the average increase [in cost] is now 7% or 4% assuming the manufacturer absorbs 50% of tariff,” Citi analyst Steven Zaccone wrote in a note to clients. He estimated the electronics retailers will need to increase prices by 3% to 5% to offset the effect, which he calls “more manageable.”
Read more: What Trump’s tariffs mean for the economy and your wallet
Heading into 2025, “underlying trends within the electronics category were actually pretty favorable,” Feldman said. With the reduction of tariff risk, things could be looking up for Best Buy, he said.
With uncertainty still hovering, Walmart (WMT) and Costco (COST) remain top picks for Wall Street.
“Even with the tariff pause, it’s still a 30% tariff that’s going to cause some amount of price increases at retail,” Feldman said. It’s important to look for names that have “good management teams with good sound businesses that have opportunity to drive growth and profitability.”
In the past year, Walmart shares are up nearly 60%, and Costco shares are up nearly 28%. Both multinational chains also have large exposure to groceries — up to 60% of Walmart’s US sales — which have been largely shielded from tariffs.
“It’s nearly impossible to time the market,” Feldman noted of the best time to buy into the stocks.
“No other retailer really has the ability and scale to do at the size that Walmart can,” Jefferies analyst Corey Tarlowe told Yahoo Finance, adding that he also likes Walmart’s higher-margin advertising business and membership revenue from Walmart+ and Sam’s Club.
Feldman pointed to both Costco and Walmart’s ability to offer low prices, adding they are still favored to pick up market share in a cautious consumer environment.
Walmart reports earnings before market open this Thursday. Costco earnings will be out after market close on May 29.
Feldman also likes Lowe’s (LOW) and Home Depot (HD), which could benefit from a “relief rally” should discretionary spending recover. Both home improvement retailers report earnings next week.
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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