By Jacob Sonenshine

Nike and other large companies are warning about tariffs, and the stock market could be in for a wake-up call.

So far, stocks have largely ignored tariffs' threat to the economy, assuming that any resulting inflation will wear off next year. The S&P 500 has risen 34% from its April low after President Donald Trump announced tariffs across trading partners.

But companies are highlighting the opposite -- that costs are still rising. Many companies had bought up materials before the onset of tariffs, and they've only just recent begun buying the higher-cost, tariffed goods. So the U.S. likely still hasn't seen the full impact of these levies, which means more pain could be on the way for both the economy and the market.

Nike recently raised its estimate for tariff costs. The athletic apparel maker expects its gross margin for its fiscal year ending in May to decline by 1.2 percentage points, worse than its previously estimated drop of 0.75 percentage points. Chief Financial Officer Matthew Friend said on the Sept. 30 earnings call that Nike is considering ways of offsetting the added costs, putting the possibility of lifting prices next year in play.

McCormick & Company, maker of spices and related grocery items, said Oct. 7 it's seeing its suppliers pass along higher tariff costs this quarter. Its gross margin fell 1.2 percentage year over year in its fiscal third quarter ended in August. While it didn't tie any potential price increases to tariffs, the company is undoubtedly trying to maintain its margins in the face off higher costs and noted that consumers are willing to pay more for certain products.

Conagra Brands, which makes all sorts of popular cooking and snack brands, said on Oct. 1 it will see higher-than-expected costs emanating from tariffed materials that go into the company's product packages, such as metals, in coming quarters.

Levi Strauss, maker of jeans, reduced its full-year gross margin outlook issued Oct. 9 on the back of tariff costs and emphasized the many areas of its business in which it's lifting prices to offset those costs.

All these comments suggest that markets should expect inflation to remain elevated -- and maybe rise further -- as plenty of companies will likely boost prices to protect their margins. Inflation is already above the Fed's 2% target, and higher prices from major companies won't help bring it down. That could translate into fewer Federal Reserve interest-rate cuts, which would mean less support for the economy and a possible market hiccup.

The S&P 500's rally, which has included all sectors, has brought it close to its record high, partly because markets expect many rate cuts to help fuel economic growth. If the Fed doesn't lower rates as much as markets are hoping, stocks may have nowhere to go but lower.

"The Fed has a challenging job ahead, balancing near-term risks to inflation and downside risks to the labor market, leaving 'no risk-free path' with future monetary policy decisions," writes Adam Turnquist, chief technical strategist at LPL Financial.

Next week could bring more corporate warnings. Ford Motor and General Motors report earnings net week, and both have seen analyst forecast lower gross margins this year versus last year, partly on the back of tariffs. The companies haven't yet lifted car prices enough to fully offset the costs, so it's conceivable that they could lift prices more over the next few quarters. The market will look out for commentary on those dynamics on the coming earnings calls.

The company will likely shoot for "continued improvements in its business model to offset the tariff impact," writes Wedbush analyst Dan Ives.

None of this is to say the sky is falling -- it isn't -- but it does increase the chances of a substantial market pullback.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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October 16, 2025 16:20 ET (20:20 GMT)

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