S&P500: Traders See Limited Risk as Supreme Court Expected to Uphold Tariffs

Markets Unfazed by Trump Tariff Ruling as Traders Focus on Supreme Court and Fed Signals

Markets held steady following a major appeals court decision that challenged the legality of former President Trump’s tariffs on Chinese imports. Traders see little reason to reprice risk, with legal experts and strategists betting the case will head to the Supreme Court, where a reversal is likely.

While the ruling casts doubt on the use of Section 301 trade powers, Section 232 tariffs—covering key sectors like autos and metals—remain unaffected. The muted reaction reflects trader belief that core tariff structures will stay intact, at least for now.

What’s Driving the Calm in Equities and Bonds?

Jefferies’ Mohit Kumar summed up the prevailing view: “We do not see much market impact from the court ruling. The matter would pass on to the Supreme Court, which is likely to rule in favor of Trump.” Goldman Sachs echoed that sentiment, noting minimal systemic risk unless the Biden administration abandons appeal efforts.

Sector moves have been selective. Retail stocks like Walmart and Nike could gain if import costs drop, while automakers are unlikely to benefit due to Section 232 coverage. Bank of America expects stronger Q4 performance from consumer names if tariff relief aligns with inventory build cycles.

Is the Bond Market Underpricing Fiscal Risk?

With tariffs generating roughly $28 billion in July alone, any unwind could hit U.S. revenue. Pimco warned that if refunds are issued or revenues fall, Treasury issuance would rise, potentially pushing 10-year yields past 4.5%. That could derail soft-landing bets and pressure equity valuations.

Barron’s also flagged the legal ruling as a “sleeper risk” to bond markets. However, Morgan Stanley sees room for rates to fall regardless. Their team projects the Fed will cut rates steadily through 2026, driving the funds rate to 2.25%, especially if lower tariffs cool inflation.

Will the Supreme Court Reinforce Executive Trade Powers?

Legal consensus leans toward a Trump-favorable outcome. Citi assigns a 70% chance the Supreme Court overturns the lower court, preserving broad presidential trade authority. Brookings’ Amanda Steinberg highlighted the Roberts Court’s pattern of upholding national security-based executive actions.

Still, some analysts note rising corporate and political resistance to sweeping tariffs—even if upheld legally. Future trade policy may be narrower and more legally insulated.

Market Outlook: Monitor Rates, Retail, and Legal Timelines

Traders should keep an eye on Treasury auctions, court schedule updates, and sector divergence between retailers and manufacturers. The risk of near-term disruption remains low, but clarity on trade policy could drive medium-term positioning across equities and bonds.

As legal momentum builds, markets are betting that structure—not substance—will carry tariff policy forward. For now, the focus returns to Fed signaling, bond yields, and sector rotation.

More Information in our Economic Calendar.