What do markets expect from US Supreme Court's ruling on Trump's tariffs

• Wells Fargo estimates striking down tariffs would lift S&P 500 earnings before interest and taxes by about 2.4% in 2026, potentially triggering a market rally especially for consumer-facing companies and retailers.
• A ruling requiring refunds could total $150 billion and force increased Treasury issuance, potentially pushing bond yields higher and adding fiscal concerns for government revenues.
• Despite fears, economic impact has been muted so far with limited inflation effects, while the US trade deficit fell to its lowest level since 2009, reflecting weaker imports rather than stronger exports.

Market Summary: US Supreme Court Ruling on Trump's Tariffs

Key Facts and Timeline

The US Supreme Court may issue a landmark ruling Friday on the legality of President Trump's tariffs imposed under the International Emergency Economic Powers Act (IEEPA) of 1977. The case, argued in November, questions whether the administration lawfully used emergency powers to justify sweeping, long-term trade duties.

Central Issues

Two critical questions face the court: (1) whether IEEPA grants authority for the tariffs, and (2) whether importers must receive refunds if tariffs are ruled unlawful. Trade lawyers estimate potential refunds could reach $150 billion. Prediction market Kalshi assigns only a 28% probability the court fully upholds the tariffs.

Market Implications

Equities: Wells Fargo estimates striking down tariffs would boost S&P 500 EBIT by 2.4% in 2026. Consumer-facing businesses and retailers would benefit most, while materials and domestic producers could lag. A negative ruling could trigger a market rally, though stocks are already up 16% in 2025.

Bonds: Removing tariffs could reduce government revenues, potentially pushing Treasury yields higher and increasing issuance to cover refunds.

Sectors: Financial firms and importers stand to gain; commodities and materials sectors may underperform if protections are removed.

Economic Context

Despite tariff fears, inflation impact has been limited. The US trade deficit fell to its lowest since 2009 in October. Morgan Stanley's base case assumes a 16% effective tariff rate by end-2025, contributing roughly 70 basis points to core PCE inflation.

The ruling could establish critical precedent on presidential emergency powers and reshape trade policy for years, with implications extending far beyond immediate market reactions.