News broke late on Wednesday (27 May) that a US federal court had ruled President Trump’s use of emergency powers to enact his sweeping range of tariffs in April weren’t legal. The court blocked the imposition of some of the levies and invalidated the orders. The news caused both the S&P 500 and the FTSE 100 to pop higher when the market opened on Thursday, but I think this could be short-lived. Here’s why.
Optimism misplaced
The court’s ruling is likely just a short-term block for the President. His administration has already lodged an appeal, and if this case goes to higher courts in the land, it’s likely they will get a favourable ruling. Further, this decision does not impact some tariffs, such as those relating to steel, aluminium, and other product-specific levies.
Therefore, I think some of the optimism in the stock market right now is a little misplaced. The main reason that would make me think the policy regarding tariffs has fundamentally shifted is if it comes from official government sources. Even then, we have seen the swift change of policy decisions over the past month, meaning that it’s hard to take things at face value.
Particularly in the case of FTSE stocks, I’m avoiding buying anything just on the basis of a rally for a few days. I think that from here, the optimism likely fades over the next week, especially if news regarding a successful appeal comes through. In terms of specific stocks, I’d suggest looking at companies that can perform well irrespective of any tariff news, as these shares could outperform for the rest of the year.
Ideas that avoid tariff concerns
For example, consider Sage Group (LSE:SGE). The accounting and payroll software firm has enjoyed a 15% share price rally over the past year.
One of the company’s appealing elements is that its revenue is mostly recurring, digital, and not tied to physical trade or manufacturing inputs. This is good for those concerned about tariffs and other investors who believe that subscription revenue provides more stable cash flow. High retention rates also provide visibility.
The US contributes around 15%-20% of total revenue, but I see this as good revenue diversification away from the UK.
Looking forward, the rapid growth of AI has helped the company grow further. It has been successfully transitioning from legacy desktop software to a cloud-first model. Even though client adoption is progressing well, there’s still a huge amount of potential in expanding this offering further.
As a risk, the business mainly serves small and medium-sized enterprises. So it’s sensitive to any downturn in the UK economy, which might cause these firms to cut back on spending.
Overall, even though optimism about the US court ruling might fade, I think investors could consider allocating money to growth stocks that are unlikely to be impacted either way.
