As we start an abbreviated week in the market, investors will be closely monitoring the release of the FOMC minutes for insights into the Federal Reserve’s monetary policy stance. In addition, a delayed release of November and December housing figures, along with December’s personal consumption numbers, is on the agenda. While PCI remains the Federal Reserve’s preferred inflation gauge, traders largely expect interest rates to remain unchanged within the 3.5%–3.75% range.
Yet, there is one looming issue that investors have been anticipating but few are openly discussing: the Supreme Court’s upcoming ruling on tariffs. With the Court returning from their winter holiday this Friday, anticipation for their decision is building. This ruling—the proverbial “elephant in the room”—could shake up various asset classes as investors assess who will ultimately be hurt or benefit. If the Court rules that tariffs cannot be broadly applied to all countries as they have been, significant volatility is likely to follow.
In the immediate aftermath, stocks could see a positive reaction thanks to higher margins, especially in retail and manufacturing sectors. However, over the longer term, equities might come under pressure as concerns grow about the broader use of executive power in trade matters. The bond market, meanwhile, may not respond favorably: the loss of tariff revenue would likely push Treasury yields higher as the government needs to increase borrowing to make up the shortfall.
The impact could be partly mitigated if the administration quickly moves to replace any voided tariffs with new ones under different legal authorities. Still, the ruling would have far-reaching, long-term implications for the balance of power between the Executive branch and Congress in shaping trade policy. This could introduce extended uncertainty and increased market caution, with fallout potentially leading to a more complex and persistent negative reaction. The decision is both overdue and highly anticipated.
In summary, investors face a pivotal week with several key data releases and an impending Supreme Court decision that could reshape market dynamics. Staying attentive to these developments will be crucial in navigating the uncertainties ahead.
