With Trump's reciprocal tariffs roiling the markets, investors are looking to Happy Meals for a smile. 

On Thursday, shares of McDonald's (MCD), Yum! Brands (YUM), and Restaurant Brands International (QSR) all popped while the wider market plunged. The Golden Arches is up 2%, while Yum (KFC, Pizza Hut, Taco Bell) and RBI (Burger King, Tim Hortons, Popeyes) are up 2% and 1.4%, respectively. 

The S&P 500 dropped nearly 5% amid the selloff. 

Fast food chains could benefit as investors try "to shield their portfolio from tariff risk and uncertainty," BTIG analyst Peter Saleh told Yahoo Finance over the phone. 

"Generally, the vast majority of the products are sourced domestically," Saleh said, with a modest amount of items like produce, beef, and wheat imported from Canada and Mexico. 

As of April 5, all imports will face a baseline tariff of 10%. On April 9, about 60 countries will get a higher rate. China is facing a 34% reciprocal tariff on top of the 20% tariff already in place, making it a total of 54%. 

But for Canada and Mexico, goods compliant with the US-Canada-Mexico agreement (USMCA) are exempt form duties, while non-compliant goods are charged 25%. Roughly 80% of key food categories imported from those two countries are USMCA compliant, per TD Cowen's Andrew Charles, who called the exemption a win for the food industry.  

The fast food giants also have the benefit of the franchise model, in contrast to many fast casual restaurants like Chipotle (CMG), Cava (CAVA), Sweetgreen (SG), and Shake Shack (SHAK). Shares of those four sank 4%, 7%, 13%, and 12%,.

"If everybody's sales are going to be hurt, the earnings are going to be hurt less for the franchise business models," Saleh noted. 

Bernstein analyst Danilo Gargiulo and Saleh both have Neutral rating on McDonald's and Yum! Brands, despite perception the chains could be more resilient when consumers tighten their belts. 

"You're not getting a lot of earnings growth out of McDonald's, and you're paying 25 times earnings growth that ... does not seem like a good value proposition," Saleh said.

The companies' efforts to compete on value, with Taco Bell increasing its value mix from 13% to 18%, and McDonald's bringing its value mix to more than one-third, could hit its profits. 

"[One-third] is too much, in my opinion ... they need to bring it down to more reasonable levels and start promoting more full price items," Saleh added. 

Phil Kafarakis, CEO of the Food Away From Home Association (IFMA), told Yahoo Finance that throwing these tariffs "on top of everything" will likely cause "another round of reviews on pricing."

He predicts fast food restaurants like McDonald's and Wendy's (WEN) will continue to push promotional activity, like the $5 meal deals, to encourage visits.

"It's going to be a margin squeeze ... there's no question about it," Kafarakis said. "It's just a matter of [the] frequency of promotions and who's going to pass [the costs] on and who's not."

For fast casual players, investors might be pricing in the idea of a recession and a "significant contraction in demand going forward," noted Gargiulo. 

EY chief economist Gregory Daco increased the odds of recession from 40% to 60% on Thursday. 

"Our initial assessment of the economic impact of the new tariff measures points to a substantial hit to the US and global economy, with consumer spending possibly retrenching and a risk that the economy could fall into a recession," he wrote in a post on LinkedIn.

But fast casual restaurants are also mostly insulated from the impact of tariffs. Vast majority of its international sourcing comes from Canada and Mexico, per Charles. 

William Blair analyst Sharon Zackfia predicts that fast-casual players will end up outperforming as price gaps continue to shrink between them and their fast food peers.

"Overall promotional intensity has generally remained elevated in an effort to woo back customers after several years of outsized price hikes, and sales trends remain healthiest in fast casual, which appears to be benefiting from both trade-down from casual dining and trade-up from fast food as the price gap has narrowed," she wrote.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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