The U.S. Supreme Court is poised to rule on former President Trump's use of emergency tariff authority, a decision that could jolt financial markets, with particularly severe consequences if justices overturn the tariffs. The ruling, potentially issued as early as Friday, will determine whether Trump could legally impose tariffs under the International Emergency Economic Powers Act without congressional approval. During November's oral arguments, justices expressed skepticism about Trump's tariff authority. Current predictions on online betting markets suggest only a 30% probability the court will uphold the tariffs. Analysts and investors warn that overturning the tariffs could impact government revenue, push Treasury yields higher, and trigger fresh volatility in stock markets.
Eddie Gable, CEO of KEY Advisors Wealth Management, stated, "We've never seen a ruling with such massive economic implications. A Supreme Court decision against the president that forces the government to refund all tariffs would be profoundly negative for markets—equivalent to draining liquidity from the system." When Trump announced tariff hikes last April, stocks fell nearly 5% while Treasury yields initially plunged as investors fled to safe havens amid uncertainty. Stocks subsequently rebounded, gaining over 16% in 2025 and repeatedly hitting new highs.
Some investors believe stock markets could rally if the court strikes down existing tariffs, particularly benefiting companies burdened by high import costs. Investors note that a ruling requiring refunds would boost corporate profits, with importers expected to receive $150-200 billion in refunds over coming months. "The equity market overall would likely benefit," said John Velis, Americas Macro Strategist at BNY Mellon, "with particular strength likely in retail and consumer goods sectors. Electronics could also perform well." Some investment advisors are already shifting funds into small-cap stocks, anticipating that Federal Reserve actions will suppress 10-year Treasury yields while injecting liquidity to stimulate growth.
"This is about as optimistic as it gets," remarked Gable, who established a 4% small-cap allocation in mid-December, adding, "If these smaller companies get tariff relief on top of that, it's like pouring gasoline on a fire." The Russell 2000 small-cap index rose 11.3% in 2025 and has gained 4% year-to-date. Some investors caution that any knee-jerk market reaction post-ruling will likely be short-lived, warning that if tariffs are overturned, the administration would quickly utilize other legal provisions to reimpose taxes. "Short-term, this is just noise," said John Pantakidis, Managing Partner at Twin Focus Capital, "The market is ignoring the president's constant threats to impose additional tariffs."
David Seif, Chief Economist for Developed Markets Economics at Nomura, noted Trump could pursue five alternative legal pathways to impose tariffs, some carrying rates as high as 15%. "It's almost certain that by the end of 2026, we'll see a tariff regime nearly identical to the current one," he added. Reduced tariffs and consequent government revenue declines could pressure Treasury bonds, driving yields higher. Rising yields typically hurt stocks as investor demand shifts toward bonds. Trump has called a potential tariff overturn an "economic disaster." Whether affected businesses are entitled to government refunds remains unclear.
Phil Blancato, Chief Market Strategist at Osaic, suggested a refund-mandating ruling might force the Treasury to issue more debt. JPMorgan estimates annualized tariff revenue could drop from approximately $350 billion to $250 billion if the government shifts to alternative legal mechanisms with lower rates, reigniting concerns about U.S. fiscal outlook. Prediction markets like Polymarket show active betting on the ruling's outcome. One Polymarket account has built a nearly $50,000 position tied to the Supreme Court decision, positioned to profit substantially if the court overturns tariffs.
If prediction markets prove wrong and the court upholds Trump's tariffs, markets could face another selloff. Alex Morris, Chief Investment Officer at F/m Investments, warned that allowing Trump to threaten tariffs in ways investors view as unpredictable would disrupt markets. Some fund managers have already taken steps to limit tariff-related risks by selling shares of vulnerable companies. "Our consistent strategy focuses on companies with resilient supply chains," one fund manager noted, adding this becomes particularly crucial in high-tariff environments.
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