About 40 companies discussed refunds in the first quarter. (Eric Thayer/Bloomberg)
key takeaways:
- The Trump administration began the process of tariff refunds in April after the Supreme Court struck down the tariffs in February.
- Wells Fargo’s Ohsung Kwon said about 40 companies discussed refunds in the first quarter, but only eight recognized them as profits.
- Analysts are divided on whether the repayments will meaningfully boost the stock as refunds are largely viewed as one-time items.
The sweeping tariffs that underpin President Donald Trump’s economic policy have shifted from a tailwind to a tailwind for the stock market, with the Supreme Court’s decision setting the stage for a potential earnings boon for some companies.
Analysts were forced to break their models and downgrade recommendations after Trump unveiled so-called “Liberation Day” tariffs in April 2025. Those duties were removed in February, when the Supreme Court ruled that the president does not have the authority to use the International Emergency Economic Powers Act to impose the levy.
Faced with an estimated $166 billion in refunds, the Trump administration began the repayment process in April. The first round of repayments took place in May, returning $22 billion, according to the Treasury Department. That amount was almost equal to the tariffs collected during that month.
Those refunds and some of the other stocks on the way are a tailwind that “no one is talking about” as the second half of the year gets underway, according to Ohsung Kwon, an equity analyst at Wells Fargo & Co.
“I don’t think anyone really noticed it yet, and people were skeptical, including us,” Kwon said of the positive impact of the refunds. “We were skeptical that those checks would actually be issued, but it’s actually happening.”
About 40 companies, including Apple Inc, Caterpillar Inc, Dollar Tree Inc and Tesla Inc, discussed refunds in the first quarter, Kwon said in a note published last week. But only eight recognized them as profitable, including Ford Motor Co., General Motors Co. and Under Armor Inc.
Kwon acknowledged the number is small, but he expects the list to grow as the second quarter begins. The analyst said that some people may also include these as earnings.
Ken Mahoney, chief executive officer of Mahoney Asset Management, sees the refunds as a legitimate tailwind to earnings. In his view, repayments are reversing the costs that companies incurred in their operations.
“For companies that have incurred those tariffs but have not yet incorporated refunds into guidance, the cash recovery could provide an upside surprise in earnings, margins and in some cases free cash flow,” Mahoney said.
He said the bigger impact could be on companies whose earnings beat consensus estimates that have not yet reflected the refunds. This creates the potential for positive estimate revisions and earnings growth over the next few quarters.
one-off
However, Mahoney emphasizes that these discounts should be viewed mostly as a one-time normalization rather than a recurring income driver. That one-time nature has created some skepticism among market participants, who don’t see them getting that much of a boost.
Bob Lang, chief strategist at Explosive Options, acknowledges that the repayment is a “huge amount”, but he does not see it as a “difference maker”. Reflexivity’s president Giuseppe Sette shares that view.
“The refunds will act as a balm for stocks hurt by the recent volatility,” Sette said. “But tariffs as a topic were already forgotten in the market, and a one-time intervention is unlikely to meaningfully change the market.”
There’s also the issue of how refunds are handled. Bloomberg Intelligence’s Stuart Gordon and Deborah Aitken see the matter as an “earnings-quality test” in the second quarter, saying the repayments could be reflected in “quite different ways”, including lifting gross profit or being taken off the balance sheet entirely.
For example, while Capri Holdings Ltd. recorded a refund of $40 million and increased its gross profit by the same amount, Steven Madden Ltd. kept the profit out of adjusted results and guidance. This highlights the issue of clarity on refunds, Gordon and Aitken said.
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“Despite the Court’s decision, uncertainty over the timing, process, and ultimate likelihood of reimbursement is limiting widespread recognition of tariff-related recoveries,” Gordon and Aitken wrote in a note published June 25.
Still, Wells Fargo’s Kwon sees the refunds acting as a tailwind. While he continues to prioritize AI semiconductor and infrastructure trades, the refund will serve as an impetus to broaden the market a bit, especially when paired with oil prices.
Although refunds are one-time in nature, they still serve as a “good tailwind” to corporate earnings. As Kwon said: This is not just accounting income, but cash income.
Additionally, repayments could also be counterproductive for the economy, Kwon said. Some companies are discussing using refunds to reduce inflation and consumer concerns.
“With that extra cash, I think a lot of these companies will use it to fund capital expenditures or do some buybacks or increase the dividend or maybe do something like a special dividend,” Kwon said. “So I think this will be a huge headwind for the market in the second half of the year.”
