Themes & Tariffs

Tracking the returns of thematic baskets is a helpful way to see how the tariff turmoil is affecting equities. The chart showing the cumulative excess return of four important themes reveals a potential place to hide and possibly prosper in this environment. The themes are AI, Cybersecurity & Defense, Fintech & Digital Finance, and Industrial Renaissance. Baskets of stocks representing these themes were derived from several ETFs for each theme. 

The S&P 500 peak on February 19 was roughly when outperformance in Cybersecurity/Defense and Fintech/Digital Finance peaked this year. AI held on a bit longer, peaking in mid-March (see red arrows). In contrast, the Industrial Renaissance theme bottomed as the Cybersecurity and Fintech/Digital Finance themes peaked. 

Industrial Renaissance outperformance has been trending higher since the end of February. That includes stocks such as Union Pacific (UNP), Deere (DE), and others from the Industrials, Non-energy Materials, Utilities, and Energy sectors. Industrial Rennaisance is a goal of the tariffs and looks like a relatively tariff-resilient zone.