(Bloomberg) — An upcoming Supreme Court ruling on the legality of the sweeping tariffs that President Donald Trump rolled out in April, briefly sending shockwaves through markets, looms as one of the next big tests for US stocks and bonds.
The equity market has extended its rise into the new year, with the S&P 500 Index hovering near a record. The advance, which has left the benchmark about 40% above its April lows, has been fanned by the artificial-intelligence boom and Trump’s decision to dial back some of his most draconian tariffs. Treasury yields have also come down from their mid-2025 peaks as traders bet the Federal Reserve will keep cutting rates while the economy cools.
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If the nation’s top court says Trump exceeded his power with the blanket tariffs on countries around the globe, there will still be significant longer-term uncertainty, given that the White House could seek to re-impose similar levies by invoking different legal authority.
But analysts and investors say the immediate market reaction appears somewhat more predictable. A ruling striking down the tariffs would likely give a boost to stocks by promising to improve profit margins and remove a burden on consumers. At the same time, Treasuries may come under pressure as that potential stimulus complicates the outlook for the Fed’s rate-cut path and threatens to worsen the government’s budget deficit.
Wall Street may get an answer as soon as this week. The court has scheduled Friday as an opinion day, indicating that it will be the first chance for a ruling.
Tailwind for Stocks
Overall, a ruling against the tariffs would boost the earnings of companies in the S&P 500, before interest and taxes, by 2.4% in 2026 over last year’s levels, Wells Fargo & Co. Chief Equity Strategist Ohsung Kwon previously estimated. That would likely drive investors to push up prices to reflect higher profits if the Supreme Court rules against Trump. James St. Aubin, chief investment officer at Ocean Park Asset Management, said that would be “a catalyst for a little bit of a rally.”
Some stocks stand to benefit more than others. The tariffs have been particularly painful for businesses that are heavily dependent on imported goods, such as companies that cater to the US consumer. Financial firms like banks are seen likely to benefit from a more confident or flush consumer as well.
On Thursday, the S&P 500 Consumer Staples Index jumped as much as 2.3%, the biggest gain since the rally set off when Trump temporarily paused his tariffs in April. Gains on Thursday were led by Costco Wholesale Corp. and Bunge Global SA.
“On the flip side,” said Haris Khurshid, chief investment officer at Karobaar Capital, “materials, commodities and domestic producers that benefited from protectionism might lag a bit.”
Clothing and toy companies — both heavily dependent on imports from China and other Asian countries targeted with some of the highest tariffs — are seen as clear winners, according to Bloomberg Intelligence. Shares in the sector rallied in November when justices struck a skeptical tone on the tariffs during a hearing.
Nike Inc. and Mattel Inc. are potential standouts to watch. Others include Deckers Outdoor Corp., Under Armour Inc., Crocs Inc., and American Eagle Outfitters Inc., all of which have struggled with tariff-related uncertainty. Home furnishing stocks have been volatile too, including Wayfair Inc., Williams-Sonoma Inc. and RH.
Industrial manufacturing giants Caterpillar Inc. and Deere & Co. are among those set to benefit the most from tariff refunds, according to Kwon. Hedgeye also sees positive implications for transport stocks, expecting a boost if lifted tariffs — in combination with the impacts of Trump’s tax cuts — give the economy a boost early this year. That could benefit United Parcel Service Inc., FedEx Corp. and trucking companies.
Major banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. faced volatility last year, alongside private equity giants like Blackstone Inc., amid concerns that Trump’s trade war will slow economic activity. Financial-technology companies such as Affirm Holdings Inc. and Block Inc. are prone to big swings, as are stocks linked to cryptocurrencies.
‘Fiscal Concerns’
Bond traders are bracing for volatility, even if it’s expected to be short-lived. Treasuries gained more than 6% last year, their best performance since 2020, as the market prepared for the Fed to resume its interest-rate cuts. Tariff revenues also took some pressure off the budget deficit, easing the perennial worries about the surging government debt.
A removal of tariffs would likely “rekindle fiscal concerns, presenting a risk of higher long-term yields and steeper curves,” JPMorgan strategists including Jay Barry wrote in a note. But any such impact “should be fairly limited,” because the Trump administration is likely to pursue alternative legal routes to reinstate most of the levies, they added.
Investors would be watching for any word on the timing and scale of refunds that the government might have to pay to importers, according to Morgan Stanley. A team including Martin Tobias and Matthew Hornbach said that would have implications for the size of the government’s Treasury bill sales.
But given that Wall Street traders have been waiting for such a potential verdict — and have likely priced in some of the risk — a bond market selloff would likely prove short lived, according to the Morgan Stanley analysts: “The second order and more lasting reaction is investors ‘buy the fact’ and send yields lower,” they wrote.
–With assistance from Janet Freund, Jordan Fitzgerald and Georgie McKay.
(Updates index move in second paragraph, adds consumer index details in seventh and eighth.)
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