Could the largest U.S. tax increase as a percentage of GDP in 33 years affect the stock market? Yes.
Open your pocketbooks. You’re about to pay up for President Trump’s tariffs this year.
That’s the overriding message from a recent report published by the Tax Foundation, a nonpartisan organization focused on tax policy. The impact of tariffs will cost the average U.S. household $1,300 in 2026, based on the Tax Foundation’s analysis.
With all of the tariffs already in place or scheduled to be levied as of Feb. 6, 2026, the average effective tariff rate is the highest since 1946. Trump’s tariffs also represent the largest U.S. tax increase as a percentage of GDP since 1993, according to the Tax Foundation.
What does all of this mean for the stock market in 2026?
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Two sides of the argument
A case can be made that tariffs won’t affect stocks much this year. After all, the Tax Foundation estimated that the Trump administration’s tariffs cost the average U.S. household $1,000 in 2025 — and the S&P 500 (^GSPC +0.10%) rose 16%.
White House spokesman Kush Desaid said in a public statement, “America’s average tariff rate has increased by nearly tenfold in the past year — while inflation has actually cooled, real wages have risen, GDP growth has accelerated, and trillions in investments continue pouring in to make and hire in America.”
However, the Tax Foundation estimates that Trump’s tariffs will reduce GDP by 0.5% over the next 10 years if they remain in place. The organization’s analysis concluded, “Historical evidence and recent studies show that tariffs are taxes that raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, resulting in lower income, reduced employment, and lower economic output.”
Tariffs could have a greater impact on businesses and the stock market in 2026 than in 2025. Many companies stockpiled inventory early last year in anticipation of tariffs. Those inventories have been depleted, and the strategy is no longer available.
U.S. companies now face a no-win choice. On the one hand, they can raise prices and risk losing revenue if customers reduce spending. On the other hand, companies can absorb the costs of tariffs but see their profit margins shrink. Either way, profits could be squeezed. And as earnings go, so go share prices.
The “TATA” trade
A phrase was created last year called the “TACO trade,” with “TACO” an acronym for “Trump Always Chickens Out.” The idea was that whenever stocks fell significantly due to tariff worries, it presented a buying opportunity because the president would back off his most aggressive tariff threats.
However, the “TATA trade” (with “TATA” standing for “Trump Always Tries Again”) could be more appropriate for 2026. Even with the real possibility that the U.S. Supreme Court could overturn the White House’s tariffs under the International Emergency Economic Powers Act (IEEPA), the Trump administration insists it will reinstate tariffs through other means.
Which stocks are good candidates for the “TATA trade?” Investors should focus on companies that can perform well regardless of whether or not steep tariffs are in place.
For example, artificial intelligence (AI) infrastructure stocks could be winners. AI applications aren’t subject to tariffs like physical goods are. Micron Technology (MU 2.97%) is a top candidate on this front. The company’s high-bandwidth memory (HBM) is a critical component of AI chips. Micron is the only major U.S. supplier of HBM. Although it is a cyclical stock, Micron’s current cycle is very good.
Today’s Change
(-2.97%) $-12.24
Current Price
$399.42
Key Data Points
Market Cap
$450B
Day’s Range
$395.28 – $413.62
52wk Range
$61.54 – $455.50
Volume
2.3K
Avg Vol
33M
Gross Margin
45.53%
Dividend Yield
0.12%
Regional bank stocks tend to have relatively low exposure to global trade policies. They could also benefit from the domestic stimulus spending included in the “One Big Beautiful Bill Act.” Regions Financial (RF +0.13%) looks like an attractive stock in this group. It’s reasonably priced, with a forward price-to-earnings ratio of 11.6. Regions also offers a dividend yield of 3.5%.
Today’s Change
(0.13%) $0.04
Current Price
$29.78
Key Data Points
Market Cap
$26B
Day’s Range
$29.64 – $30.27
52wk Range
$17.74 – $31.53
Volume
10M
Avg Vol
13M
Dividend Yield
3.46%
Uncertain times
The biggest issue that tariffs create for the stock market is uncertainty. Investors hate uncertainty. Does that mean the broader stock market is doomed to perform dismally this year? No, not necessarily. Other factors affect the economy and the stock market beyond tariffs.
However, we could see 2026 as more of a stock-picker’s market. In such an environment, investors must be highly selective about which stocks they buy. But if the Tax Foundation’s analysis is correct, they’ll have roughly $1,300 less to invest than they would have otherwise.
