Wall Street Traders Keep Calm After Tariff Ruling: Markets Wrap
(Bloomberg) — Stocks meandered in a tight range while bonds fell alongside the dollar after the Supreme Court rejected Donald Trump’s tariffs. Crypto, gold and oil mostly hovered as traders sought to assess the president’s plans for a program that sent markets careening when first announced last year.
While the S&P 500 bounced, only half of its shares rose. The court said Trump exceeded his authority by invoking a federal emergency-powers law to impose “reciprocal” tariffs as well as targeted import taxes the administration says address fentanyl trafficking. Concerns that an eventual budget shortfall could weaken the nation’s fiscal posistion weighed on the greenback and Treasuries. An ETF tracking emerging markets jumped toward a record.
“The Supreme Court just dropped a pretty large wrench into the policy machine,” said Mark Malek at Siebert Financial. “The revenue stream that had quietly been flowing into Treasury from import duties is now turned off, and the government may actually have to refund a meaningful portion of what it already collected as companies file claims.”
White House Press Secretary Karoline Leavitt said Trump would appear before the media at 12:45 p.m. New York time. Ahead of the ruling, Trump had warned that curtailing his tariffing power would mean forgoing trillions of dollars that could help pay off America’s huge public debt.
For US companies that depend on imported inputs like manufacturers, retailers, autos, and industrials, this acts like a sudden margin expansion because tariffs were effectively a tax on cost of goods sold, Malek said. But tariffs had been functioning as a shadow tax that helped fund spending without explicitly raising levels. Remove that and the deficit widens and borrowing rises.
“Good for earnings, not exactly comforting for bonds,” he said. “So, the market read is straightforward: tariff-sensitive equities breathe easier, Treasury supply likely increases, and policy uncertainty stays elevated. The tariffs may be gone today, but the incentive for them absolutely is not.”
The modest reaction is testament to how much sentiment has shifted on Wall Street that defeat of Trump’s signature program – policies that sent markets reeling in April — was received so quietly in markets. One explanation is that investors expected it. The legal basis for his executive orders was ambiguous. Another is that traders view the drama as far from over.
Trump can lean on alternative legislation to try to rebuild his tariff wall. The ruling invalidates a large portion of the tariffs that Trump has rolled out in his second term, but there are other ways that he can introduce import taxes. While the Constitution gives Congress the power to levy taxes and duties, lawmakers have delegated some authority to the executive branch through a number of statutes.
“This just means the Trump Administration will pivot to country-specific and sector-specific tariffs. Those take longer to impose,” said Brian Jacobsen at Annex Wealth Management. “The Court did not order refunds to be issued, but it does open the door to them.”
The S&P 500 rose 0.1%. The yield on 10-year Treasuries advanced two basis points to 4.09%. The dollar edged lower.
The Supreme Court left it to lower courts to address the extent to which importers are entitled to refunds, which could total as much as $170 billion — more than half the total revenue Trump’s tariffs have brought in.
“Are we dealing with refunds? It’s not clear. What will the president’s next move be?” said Steve Chiavarone at Federated Hermes.
Neil Dutta at Renaissance Macro Research says he doesn’t think we have heard the last from Trump and tariffs as there’s a vast legal architecture that the White House can draw from to prosecute this.
“The issue is if he does not dial the tariff threat back on, he basically looks like a ‘lame duck’,” Dutta said. “If Trump turns the trade knob back on, we get more uncertainty. If he decides to give in, then he is basically cooked politically.”
For now, Glen Smith at GDS Wealth Management and James Athey at Marlborough Investment Management said they would not be making any changes in reaction to the court decision.
Overall, while today’s ruling does potentially, to some degree, nullify the “escalate to de-escalate” negotiating strategy, it seems highly unlikely that the administration, or Trump himself, will change their entire “modus operandi” when it comes to negotiations, and using tariff threats as a means of leverage, according to Michael Brown at Pepperstone.
“Put simply, for markets, and in the grand scheme of proceedings, little is likely to change on the trade front – while the legal ‘means’ of imposing tariffs will now differ, the ‘ends’ will ultimately be very similar to the current status quo,” he said.
In general, investor interest in both the Supreme Court review and tariffs overall appear to have waned in recent months, noted Michael Bailey at FBB Capital Partners.
“To be fair, Trump may come back with a work around for tariffs despite today’s Supreme Court ruling,” he said. “Also, investors are generally expecting the overall tariff burden to start fading as we get into the second half of the year. Today’s Supreme Court ruling seems to be at least neutral to this favorable trend of moderating tariff risk.”
On the economic front, inflation-adjusted gross domestic product increased an annualized 1.4% in the fourth quarter after rising 4.4% in the prior period. Overall, the economy expanded 2.2% last year. Separately, data showed the Fed’s preferred measure of underlying inflation — the core personal consumption expenditures price index — rose 0.4% in December, the most in nearly a year. On an annual basis, the core PCE climbed 3%.
Today’s economic data delivered a “messy message” of both hotter-than-expected inflation, and slower-than-anticipated growth, according to Art Hogan at B. Riley Wealth.
“The confusing message from today’s data confirms the current Fed bias to take their time with monetary policy,” he said.
Corporate Highlights:
Paramount Skydance Corp. said it has “no statutory impediment” in the US for closing its proposed $77.9 billion acquisition of Warner Bros. Discovery Inc., after it cleared a key US antitrust hurdle. Akamai Technologies Inc. gave an outlook for adjusted earnings that is weaker than expected for both the first quarter and the full year. Newmont Corp. — the world’s biggest gold miner — expects to churn out less bullion this year, partly due to planned upgrades at some of its managed mines and lower production at two ventures jointly owned with Barrick Mining Corp. Newmont sent Barrick a so-called notice of default after finding evidence of alleged mismanagement at a Nevada joint venture, escalating tensions between the partners in a key mining region. BHP Group signed a nonbinding letter of intent with Faraday Copper Corp. to explore a deal that would see it restart a historic copper mine in Arizona. Starbucks Corp.’s India unit is adding stores and offering new items like protein foam coffee to boost its footprint in the world’s most-populous country, undeterred by widening losses. Anglo American Plc took yet another writedown on its struggling De Beers unit as one of the diamond industry’s deepest ever crises continued to weigh on the miner’s profits. Danone SA gave its first estimate of the potential cost of the recent recalls of infant formula over a contamination scare, saying it expects a €35 million to €70 million ($82.4 million) financial hit in the first quarter of the year. Italy’s Enel SpA is expected to outline a stronger focus on Europe and the US in a strategy update next week in a bid to lock down steady returns, people familiar with the matter said. Some of the main moves in markets:
Stocks
The S&P 500 rose 0.1% as of 12:33 p.m. New York time The Nasdaq 100 rose 0.3% The Dow Jones Industrial Average fell 0.2% The MSCI World Index rose 0.2% Bloomberg Magnificent 7 Total Return Index rose 1% Philadelphia Stock Exchange Semiconductor Index rose 0.4% IShares Expanded Tech-Software Sector ETF fell 0.2% The Russell 2000 Index fell 0.7% S&P 500 Equal Weighted Index fell 0.2% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1774 The British pound rose 0.1% to $1.3484 The Japanese yen was little changed at 155.15 per dollar Cryptocurrencies
Bitcoin rose 0.2% to $67,013.49 Ether was little changed at $1,946.46 Bonds
The yield on 10-year Treasuries advanced two basis points to 4.09% Germany’s 10-year yield was little changed at 2.74% Britain’s 10-year yield declined one basis point to 4.35% The yield on 2-year Treasuries advanced two basis points to 3.48% The yield on 30-year Treasuries advanced three basis points to 4.73% Commodities
West Texas Intermediate crude fell 0.3% to $66.26 a barrel Spot gold rose 1.3% to $5,062.28 an ounce –With assistance from Denitsa Tsekova, Vildana Hajric and Chris Nagi.
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