News of impending tariffs and their subsequent pause have sparked jitters throughout the market, with an intraday decline of nearly 2% for the S&P 500^® on Feb. 3, 2025. In an environment of tightening trade conditions, one would expect sectors and industries with predominantly domestic customers to offer greater safety than those highly connected to international markets. But how do we determine how exposed companies are to tariffs? Rather than solely considering country of domicile, an important way to assess the economic exposure of a company is through the geographic breakdown of its revenues.

Looking across the U.S. capitalization spectrum, Exhibit 1 shows that The 500™ makes up more than 80% of the revenues across S&P Composite 1500^® companies. The index is comprised of 500 companies that are all domiciled in the U.S., but only 71% of S&P 500 revenues comes from the U.S. The remainder comes from the rest of the world, including 10% from Europe and more than 10% from Asia. This is not surprising, as many large-cap companies are multinationals with an increasingly global presence.

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We can understand how geographic revenue exposure to domestic versus foreign markets has affected market performance through the S&P Global Revenue Exposure Indices, which measure the performance of companies exceeding a targeted revenue exposure to certain regions or countries.

Focusing on the S&P 500, Exhibit 2 illustrates that U.S. companies with greater foreign revenue exposure have outperformed their domestic counterparts since the start of 2017. The S&P 500 Foreign Revenue Exposure and S&P 500 Emerging Markets Revenue Exposure outperformed their U.S. counterparts by 6% and 9%, respectively, over the past five years. This outperformance is notable, considering the strengthening of the U.S. dollar over the same period, which is a typical headwind for companies with high foreign exposure who earn a greater share of revenues in foreign currencies.

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Sector tilts may be key to understanding these historical performance differentials. S&P 500 U.S. Revenue Exposure held a significant underweight to Information Technology relative to the benchmark. Meanwhile, S&P 500 Foreign Revenue Exposure and S&P 500 Emerging Markets Revenue Exposure have benefited from big tech dominance, with sizeable overweights to the sector.

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Confirming our intuition, Exhibit 4 shows that among large-, mid- and small-cap sectors, Information Technology had the lowest percentage of domestic sales. Utilities consistently had the highest domestic exposure. There were some variations across the cap range; for example, large- and mid-cap Financials had a greater domestic exposure compared to small caps, while mid-cap Energy and Materials had relatively greater domestic exposure.

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As markets continue to digest the evolving tariff plans, geographic revenue analysis across sectors may continue to offer insightful perspectives. The S&P 500 U.S. Revenue Exposure, S&P 500 Foreign Revenue Exposure and S&P 500 Emerging Markets Revenue Exposure indices offer a convenient way to observe price impact at a diversified level, while sector (and industry) approaches to risk management may prove more powerful than usual in balancing the desired exposures to sources of revenue globally.

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