Don’t be surprised if the tariff war intensifies and the stock market is unfazed. It won’t mean tariffs aren’t biting — but more likely that investors are looking in the wrong place.

If you’re looking to a popular stock market tracker like the S&P 500 Index to gauge the effect of US President Donald Trump’s proposed tariffs, don’t. It’s likely to be insulated from much of the fallout and therefore fail to reflect the true impact on US businesses.

The S&P 500 is synonymous with the US stock market for many people, but it has never been representative of the broad market. It excludes most of the roughly 4,000 US stocks. It also weights its constituents by market value, giving bigger companies more representation in the index than smaller ones. About 100 companies make up roughly 75% of the index by weighting.

But the S&P 500’s reach is even more limited now than usual. Beyond the handful of technology giants that make up nearly a third of the index, market concentration is rising across industries. The winners are amassing market share — and with it more pricing power, which helps when faced with the prospect of a trade war raising input costs.

Procter & Gamble (P&G), for example, captured 40% of the revenue generated by public companies in the household and personal products industry during the past 12 months, four times the market share of its next biggest competitor.

P&G’s dominance should give it more leverage than its rivals to pass on the cost of tariffs to customers. And because P&G’s weighting in the S&P 500 is nearly twice that of the rest of the industry combined, the index will mostly disregard how the broader group fares. 

P&G isn’t alone. Amazon.com captured 38% of the revenue generated by the consumer discretionary distribution and retail industry last year. Microsoft grabbed 32% of software and services. Berkshire Hathaway took 28% of financial services, surprisingly, and 24% of banking went to JPMorgan Chase & Co.

These titans’ pricing power is also evident in their formidable profit margins. Microsoft achieved a 45% operating margin last year. JPMorgan and Berkshire’s were 42% and 30%, respectively. Those are well higher than the median operating margin of 17% for S&P 500 companies and median margins in their respective industries.

While companies with high margins are better able to absorb tariffs, they’re more likely to use their muscle to dictate prices to consumers. 

It also happens that the top 100 companies in the S&P 500 operate in industries that don’t appear to be in the path of tariffs. Nearly two-thirds of them are in the technology, financials or health care sectors, and the group collectively accounts for more than half of the S&P 500 by weighting.

Their businesses are only tangentially related, if at all, to imports of energy, autos, machinery and electronics from Canada and Mexico, our two largest trading partners that both face the threat of sizeable duties. (I’m excluding China because it has so far been hit by a relatively modest 10% tariff, but I’m mindful that retaliation from China could raise the stakes.)

Of the remaining 100 companies, those that are most likely to be in the path of tariffs have a small footprint in the S&P 500. They include a total of five stocks across energy, materials and utilities that collectively account for just 2.4% of the index. They also include a handful of industrial and consumer-related companies, such as equipment manufacturers Caterpillar and Deere & Co. and retailers Walmart and Costco.

It’s harder to say how the broader industrials and consumer sectors will be impacted. Much of it depends — particularly for big box retailers — on the degree to which tariffs overlap with their biggest profit drivers. Even so, the impact on the S&P 500 is likely to be limited, as the two industries count 26 members that collectively comprise just 16% of the index.  

Given the makeup of the S&P 500, the index could very well shake off tariffs as currently contemplated. The same should be true of potential levies on the European Union, from which the US generally imports food, autos and pharmaceuticals.

Even if the scope of tariffs were to broaden into more industries, the pricing power of the biggest companies should give them — and therefore the S&P 500 — substantial cover.

That has little bearing on the rest of the market, though. Few US public companies have the heft of P&G or Berkshire. Many of them would feel the impact of tariffs, particularly if income-strapped consumers struggle to absorb price hikes from bigger competitors.

In fact, smaller public companies sold off considerably more than bigger ones last Monday when the market first reacted to tariff news during the preceding weekend. That may be a preview of where to look for impact.  

So, don’t be surprised if the tariff war intensifies and the stock market is unfazed. It won’t mean tariffs aren’t biting — but more likely that investors are looking in the wrong place.