For more than a century, no asset class has generated a higher average annual return for investors than stocks. Though the ride can be bumpy, time-tested and innovative market leaders have helped power the benchmark S&P 500(SNPINDEX: ^GSPC), iconic Dow Jones Industrial Average(DJINDICES: ^DJI), and growth stock-dominated Nasdaq Composite(NASDAQINDEX: ^IXIC) to new heights.
But among the thousands of publicly traded stocks investors can choose from, there exists an elite class of businesses that have accomplished something very few public companies can tout.
Only 11 public companies around the world have reached the psychologically important trillion-dollar market cap plateau. This includes all members of the “Magnificent Seven,” along with Warren Buffett’s Berkshire Hathaway, Taiwan Semiconductor Manufacturing, Broadcom, and Saudi Aramco, the latter of which isn’t traded on U.S. exchanges.
President Trump delivering remarks. Image source: Official White House Photo by Joyce N. Boghosian, courtesy of the National Archives.
Gaining entrance into this exclusive club is difficult, with the closest company currently more than $200 billion away. But because of various dynamics of President Trump’s tariff and trade policy, a pathway has been laid for the next trillion-dollar stock to be minted — and no, it’s not a tech company!
On April 2, after trading had ended for the day on Wall Street, Trump unveiled his long-awaited tariff and trade policy. He introduced a baseline global tariff of 10%, as well as revealed higher “reciprocal tariff rates” on dozens of countries that have run adverse trade imbalances with the United States.
Although reciprocal tariffs have been paused and adjusted on numerous occasions since early April, and the president has worked out a number of trade deals, there are uncertainties brought to the table by Trump’s tariff and trade policies.
For instance, there’s the worry of how American products will be treated in overseas markets, even those with trade deals in place. Anti-American sentiment has the potential to manifest into fewer American goods being purchased internationally, which would hurt businesses domestically.
However, the biggest concern with Donald Trump’s tariff policy is what it might do to the prevailing rate of inflation in the United States.
In December, four New York Federal Reserve economists at Liberty Street Economics released a report, called Do Import Tariffs Protect U.S. Firms?, that examined the impact of Trump’s China tariffs in 2018-2019 on stocks and the U.S. economy. In particular, the authors pointed to the Trump administration’s failure to make clear distinctions between output and input tariffs when the China trade war kicked off.
An output tariff is an import duty placed on a finished product. If the president wants to use tariffs as a tool to promote domestic manufacturing and protect U.S. interests, this is the type of tariff that may be able to get it done.
Meanwhile, an input tariff is assigned to an imported good used to complete the manufacture of a product in the United States — for example, importing precious metals, fasteners, and so on, to build a product domestically. Input tariffs run the risk of noticeably increasing the prevailing rate of inflation and hurting corporate margins. Over the previous two months, the trailing-12-month (TTM) inflation rate for the Consumer Price Index for All Urban Consumers (CPI-U) rose from 2.35% to 2.7%. This is when the effect of Trump’s tariffs began showing up in the monthly inflation report.
Although inflationary pressure is a concern for most businesses, it’s the perfect catalyst to mint the next trillion-dollar stock on Wall Street.
Image source: Getty Images.
While high-growth tech stocks and anything having to do with artificial intelligence (AI) have dominated the trillion-dollar ranks, the next member might just be retail powerhouse Walmart(NYSE: WMT). It’s roughly $202 billion away from reaching the $1 trillion mark, as of the closing bell on Aug. 15.
For most companies, inflationary pressures are troublesome. Some degree of pricing power is expected from America’s leading businesses. However, a TTM increase in the CPI-U of 3% or greater has a tendency to raise eyebrows on Wall Street. This figure is very much in sight, with the effect of Trump’s tariffs beginning to show up in monthly inflation data.
Size has always been one of Walmart’s clearest competitive advantages. Having deep pockets and being able to buy products in bulk helps to lower the per-unit cost of each item. This gives Walmart the ability to undercut traditional mom-and-pop retailers and even national grocery chains on price to drive traffic into its stores.
Though Walmart is likely going to eat a portion of the import tariffs it’s exposed to, it’s important to look at the bigger picture. Namely, it’s historically positioned itself as a low-cost/value retailer.
When the collective cost for goods and services climbs, consumers typically respond by turning to Walmart for more of their purchases. Even if the company eats some portion of Trump’s tariffs, an uptick in sales and foot traffic will more than outweigh any adverse impact on its margins from tariffs.
Furthermore, Walmart is leaning into artificial intelligence (AI) as a tool to lower costs, increase sales, and improve customer loyalty. AI and machine learning are aiding inventory management and logistics, with automation in some of the company’s warehouses focused on reducing inefficiencies and improving order fulfillment times.
Walmart+ is yet another catalyst for this nearly $800 billion company. Expanding its online subscription platform generates recurring revenue, boosts customer loyalty to the brand, and reinforces access to its low prices for shoppers of all walks. In the fiscal first quarter, ended April 30, global e-commerce sales surged 22%, with its U.S. online platform shifting to profitability.
Although the full impact of President Trump’s tariffs is difficult to predict, history paints a relatively clear picture that Walmart is one of the few businesses ideally positioned to thrive off this uncertainty. If the cards fall in its favor, it can become Wall Street’s next trillion-dollar stock.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Taiwan Semiconductor Manufacturing, and Walmart. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
