Loop Capital Downgrades Transportation Stocks Over Tariff Fears

Loop Capital has downgraded several transportation stocks, citing concerns over potential tariff-related headwinds. The move comes as President Donald Trump threatens to impose tariffs on imports from Mexico, Canada, and China, which could significantly impact the earnings of transportation companies. Here's a closer look at the situation and its potential implications for investors.



The transportation sector has been on an upward trajectory for the last couple of years, indicating a robust market environment. With strong signals evident in early 2025, investors are encouraged to consider this an opportune moment to invest. Recent price actions show a bullish sentiment, highlighting alignments in critical moving averages, which signal continued growth potential.

Interestingly, the 9-day Exponential Moving Average (EMA) has crossed above both the 150-day and 30-day averages. This alignment suggests that short, mid, and long-term market participants are in sync, creating a favorable environment for further upward movement. While the market may face some resistance at the 16,600 mark, a significant change in sentiment is unlikely to hinder its progress.

Looking ahead to the freight growth forecast for 2025, expectations remain modest yet promising. The anticipated growth reflects increases in both volume and value, driven by factors such as e-commerce growth, geopolitical factors, and regional strengths in Asia-Pacific and the Middle East.



Loop Capital downgraded several transportation stocks, including Union Pacific (UNP), Norfolk Southern (NSC), and CSX (CSX), citing concerns about the potential impact of tariffs on their earnings. The downgrade suggests that analysts expect these companies' earnings to be negatively affected by the tariffs, as they rely heavily on international trade for their business.

The proposed tariffs on Mexico, Canada, and China could significantly impact the earnings of transportation companies, as they would increase costs for these companies and their customers. For example, Union Pacific sources about 22% of its vehicles and Ford sources 15% of its vehicles from Mexico. A 25% tariff on these imports would increase their costs, potentially leading to lower earnings.

Similarly, auto parts companies like Visteon and Aptiv, which have significant business relationships with Ford and General Motors, could also see their earnings impacted by the tariffs. The tariffs on Canada and China could also affect the earnings of companies that rely on imports from these countries. For instance, Constellation Brands, which owns the exclusive rights to import Corona and Modelo beer to the U.S. from Mexico, could see its earnings impacted by the tariffs.

Economists have warned that the Republican president's plan to impose 25% tariffs on Canada and Mexico and 10% tariffs on China would slow global growth and drive prices higher for Americans. The benchmark S&P 500 fell 1.7% at the opening bell on the looming tariffs, reflecting concerns about the fallout from a trade war. The Chinese yuan and Canadian dollar slumped against a soaring dollar, further indicating the market's negative reaction to the potential tariffs.

In conclusion, the Loop Capital downgrade and potential tariff impacts suggest that the earnings prospects of affected transportation companies are likely to be negatively impacted. The downgrade and market reactions provide evidence of the potential negative effects of tariffs on these companies' earnings. Investors should monitor the situation closely and adjust their expectations accordingly.