What’s Next for Markets After Supreme Court Tariff Ruling?

Once again, the headlines were volatile this past week but the markets maintained their balance. What does the Supreme Court’s ruling on tariffs mean for markets? Should we be mindful of the US’s warning to Iran? What else is on the docket in the week ahead? 

Talking Points:

• The US Supreme Court ruled that President Trump did not have the authority to apply tariffs at his discretion under IEEPA
• A 10-day deadline was given by Trump for Iran to reach a satisfactory state with negotiations, and crude prices are rising as the countdown ticks away
• Top traditional event risk in the week ahead includes: an important US consumer confidence update; Nvidia earnings and a run of global GDP readings

 

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A Strong Headline and Tepid Market Response on Tariffs

One of the most prominent ‘grey swans’ lurking just at the perimeter of the market’s peripheral vision was detonated to close this past week. The US Supreme Court finally issued its opinion on President Trump’s ability to wield tariffs against America’s trading partners as negotiation fodder for better trade deals – or a source of revenue generation for those not willing to compromise. As was the expectation from betting markets leading into the delayed ruling, the country’s top court determined that the executive branch could not use the IEEPA (International Emergency Economic Powers Act) to justify the impetuous levies employed so aggressively in Trump’s second term and particularly since last April’s Liberation Day fireworks. 

On the one hand, this is an abrupt reversal of course to 2025’s most prominent volatility driver. Alternatively, the direct implications for politics, trade, the economy and markets are not as straight forward as the 6-3 vote may suggest. And, it is that nuance that has likely throttled the market’s initial response on Friday – and could very well see it unfold through systemic trends over the coming days and weeks.

Chart of S&P 500 with 100-Day SMA, 5-Day ATR and 55-Day Historical Range (Daily) 

Source: TradingView.com; Standard & Poor’s; John Kicklighter

If we were to refer to the S&P 500 or US Dollar for our assessment of the Supreme Court’s ruling on market sentiment, we would be left to confusion. The former edged higher through Friday’s close while the latter put in for a tepid retreat from four-week highs. As far as the ruling itself, President Trump will temporarily not be able to pursue an unpredictable pattern of tariff escalation to force trade negotiations based on an ambiguous ‘threat’ from large trade deficits. Theoretically, that removes a frequent source of anxiety for markets. However, there remain options for the administration to take alternative paths back to a protectionist standing – with the same backdrop for debate around trade partner pressure versus domestic taxation.

Trump has vowed to pursue alternative legal routes – including a broad 10 percent tariff, which he said would increase to 15 percent Saturday, for a capped 6-month period – to maintain pressure and his source of offsetting government revenue, at least to his administration’s claim. The other options the President spoke to in his invective Friday could include a route for high level tariffs (up to 50 percent) without time limit and not requiring Congressional approval – though they would require a basis on ‘discrimination against US commerce’ (Section 338).

Worldwide Google Search for ‘Tariffs’, ‘Iran’, ‘Economy’ and ‘Interest Rates’  

Source: Google Trends

Ultimately, it is unlikely that the alternative approaches will be as effective in forcing submission in trade negotiations or encourage further onshoring of exported production lines. There is also the mid-terms to be consider with administration’s low approval rating when considering the most aggressive options to consider. That leaves us with ambiguity on trade course – much less downstream economic impact - that takes weeks or months to realize. That may not fast track any ‘worst case scenarios’, but it will add to the concern around policy for building economic and investment connections to the world’s largest economy. 

So, while benchmark risks sentiment may stumble through this uncertainty, this is the kind of uncertainty that likely intensifies the diversification of international capital away from the US market. In practical terms, that means further fuel to the ‘sell America’ pressure that has seen US indices lose altitude relative to global counterparts and the Dollar slide since the Liberation Day disruption.

Chart of S&P 500-VEU ETF Ratio and US Economic Policy Uncertainty (Weekly)  

Source: TradingView.com; Standard & Poor’s; Baker, Bloom, Davis; John Kicklighter

 

With one grey swan detonated, we should remain alert to an amplified risk of further lower-probability-high-impact threats through the near future.  One area of particular risk to be mindful is the threat by President Trump that the United States is considering a strike on Iran given the lack of progress in negotiating a satisfactory nuclear deal. Historically, this political hot potato has been tossed back and forth in the headlines across administrations, but the calculus has likely changed significantly since the United States’ covert extradition of Venezuelan President Nicolas Maduro last month. 

Trump, this past week, warned that he was giving the Middle Eastern country 10 days to offer a reasonable solution to their impasse with a heavy implication that military action would be the result of a stalemate – backed by the deployment of a second carrier group to the region. In the wake of the Supreme Court ruling on tariffs, the president is likely looking for areas where he can reassert his influence. Given the general domestic and international perception of villainy around Iran’s leadership, this option could check multiple boxes ahead of a difficult mid-term.

Graph of Probability of US Strike on Iran  

Source: Polymarket

 

 

If we simply count out the days of the President’s warning, Iran would theoretically have until Sunday, March 1st. As far as the probability that the US will go through with a military strike, the heavy doubt of previous years will have been significantly reduced following the strikes on three Iranian nuclear sites on June 22nd. Looking to prediction markets for a tangible sense of perceived probability, a scaled calendar of ‘strike prices’ shows a 70 percent chance (on $5 million open interest) of an attack by June 30th and a 64 percent chance by March 31st (on over $290 million open interest). Recall the accusations of ‘insider trading’ around the Venezuelan operation in these markets and the volumes are noteworthy. 

Another consideration that makes this lingering risk arguably more threatening (or interesting) than the Supreme Court ruling is the more binary nature with direct consequences from a traditional markets perspective. Crude oil is clearly the most directly exposed market. Oil prices surged in June around the nuclear facility site strikes and energy prices have been climbing recently amid the headlines, with the US-based WTI active futures contract price hitting a six-month high and the Brent-WTI spread reaching a two year high around $5.75. And, given the backdrop of capital rotation and questionable confidence in speculative appetite; it would be wise to be mindful of the spillover impact such an event could have on the global financial markets.

Chart of US Crude Oil Prices Overlaid with Brent-WTI Spread (Weekly)   
​Source: TradingView.com; NYMEX; ICE; John Kicklighter

 

Headlines Vs Calendar Releases: There is a Clear Leader

In determining the potential fundamental focus of the global markets moving forward, there seems a far greater potential in headlines and their predictable timelines also make it the more probable lede. That doesn’t ensure volatility – much less trend – but it helps prioritize our own attention when analyzing the landscape. Yet, prioritizing the volatile headlines doesn’t mean we can reasonably ignore the traditional economic docket. There isn’t a definitive and discrete scheduled event that would readily be considered capable of single-handedly dictating market direction. However, we do have a few events that rise to the status of a possible potent initial catalyst for a deeper theme.

Calendar of Top Global Macro Event Risk
 
Source: John Kicklighter

 

The US Consumer Can’t Be Wrong

There is a considerable amount of ambiguity when it comes to individual lines of fundamental interest – much less the broader state of risk appetite – which has dulled the focus on traditional themes and event risk, shifting attitudes more towards a sense of ‘faith’. Reticence to commit to a ‘risk on’ or ‘risk off’ transition on the back of an otherwise clear fundamental cue can be disheartening for the analyst or investor; but it shouldn’t mean that we stop charting the course. Like volatility, speculative focus is mean reverting to the practical. One area of important interest for the US backdrop should be consumer confidence. In a world where data is questioned, forecasts are wildly divergent and economic measures are given multiple interpretations; consumer confidence cannot be readily questioned. 

Accusations of poor data collection or misinterpretation haven’t been attributed to the Conference Board’s or University of Michigan’s sentiment surveys. Even if they were doubted, the results of a diminished inclination to spend and support the economy will still result. The UofM’s February update offered a further rebound from its near series record low, but the Conference Board’s report has diverged with its own January print dropping to a 13-year low. If this continues through this update, it will draw some deserved concern.

Chart of US Consumer Confidence from Conference Board and UofM (Monthly)

Source: MacroMicro.com; Conference Board; University of Michigan

Nvidia Earnings are On Tap – And Recent Market Reactions are Telling

If we are really looking for a single scheduled event over the coming week with the greatest possible advanced expectation for awareness, it would have to be Nvidia’s earnings due after the US exchange close Wednesday (at 21:20 GMT). This is the last of the Magnificent 7  to report, and the response to its peers over previous weeks was not exactly inspiring. The general AI buoyancy that we had seen take the speculative reigns this past year has significantly fallen off. 

That has led to the shift in enthusiasm around a massive investment into AI infrastructure as an economic engine to questions over the ROI and downstream throughput. In more practical terms, Nvidia has beat analyst expectations pretty consistently over the recent past; yet at least the last five quarters’ reaction, the NVDA has dropped over short stretches since the results were published. The drop in tech-oriented appetite (Nasdaq to Dow ratio) or broader sentiment  hasn’t been as clear cut, but it shouldn’t be discounted given the market backdrop.

Chart of Nvidia and Nasdaq 100 – Dow Ratio With NVDA Earnings Highlighted (Daily)

Source: TradingView.com; John Kicklighter

An Update on Growth for Key Economies

Last week, the world’s largest economy reported a significant slow down in its economic tempo through the final quarter of 2025. The United States was running at a 1.4 percent annualized pace of growth through Q4 which was less than half the forecast by economists and a steep downshift from the previous period’s 4.4 percent tempo. The market wasn’t too perturbed by the news at the time – likely as it was distracted – but that is not an encouraging sign, even for a delayed reading. Is this just an American trend, perhaps due to the ‘sell America’ pressure; or is it a broader shift that should worry global investors? 

We are due collectively a look on economic activity for approximately 7 percent of worldwide GDP in the Q4 updates on economic activity from India (4th largest economy); Canada (10th); Turkey (16th) and Switzerland (21st). For particular domestic interest, the Indian update will come with the rupee struggling to recover from a record low – even against a weakened US dollar. Canada’s figures will also offer perspective for trade-related impacts, evolving relationships and it will present an early January insight.

Chart of Year-Over-Year GDP for India, Turkey, Canada and Switzerland (Quarterly) 

Source: TradingView.com; John Kicklighter

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-- Written by John Kicklighter, Global Head of Content

 

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