The upcoming Supreme Court ruling on the legality of President Donald Trump's massive tariffs, which rocked markets in April, is one of the next major tests for US stocks and bonds.

Equity markets have extended their rally into the new year, pushing the S&P 500 Index to a new record high. This rally, which has seen the benchmark index rise about 40% above its April low, has been fueled by the boom in artificial intelligence and Trump's decision to roll back some of his most stringent tariffs. Treasury bond yields have also fallen from their mid-2025 peaks as traders bet that the Federal Reserve will continue to cut interest rates as the economy cools.

If the nation's highest court rules that Trump overstepped his authority with blanket tariffs on countries around the world, significant long-term uncertainty remains, as the White House could seek to reimpose similar levies using different legal authorities.

However, analysts and investors say the immediate market reaction appears somewhat more predictable. A ruling overturning the tariffs would likely boost stocks by promising improved profit margins and relieving burdens on consumers. At the same time, government bonds would likely come under pressure as the potential stimulus complicates the prospects for the Fed's rate cuts and threatens to worsen the government's budget deficit.

Wall Street may get an answer as early as this week. The court has scheduled Friday as the day for the ruling, suggesting it will be the first opportunity to hear the verdict.

Positive Boost for Stocks

Overall, a ruling against the tariffs would increase S&P 500 companies' earnings before interest and taxes by 2.4% in 2026 compared to last year, according to estimates by Ohsung Kwon, chief equity strategist at Wells Fargo & Co. That would likely encourage investors to raise 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 small rally."

Some stocks could potentially benefit more than others. The tariffs are particularly detrimental to businesses that rely heavily on imported goods. Financial companies like banks are expected to benefit from more confident or affluent consumers.

"Conversely," said Haris Khurshid, chief investment officer at Karobaar Capital, "raw materials, commodities, and domestic producers that benefit from protectionism may be left behind somewhat."

Apparel and toy companies, both heavily reliant on imports from China and other Asian countries targeted by the highest tariffs, are seen as clear winners, according to Bloomberg Intelligence. Shares in these sectors surged in November when the judges expressed skepticism about tariffs during the hearing.

Nike Inc. and Mattel Inc. are potentially prominent companies 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. Shares of home improvement companies have also fluctuated, including Wayfair Inc., Williams-Sonoma Inc., and RH.

Industrial manufacturing giants Caterpillar Inc. and Deere & Co. are among the companies that would benefit most from a tariff rollback, according to Kwon. Hedgeye also sees positive implications for transportation stocks, predicting a boost if the tariff rollback combined with the impact of Trump's tax cuts provides a boost to the economy early this year. This could benefit United Parcel Service Inc., FedEx Corp., and trucking companies.

Major banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc. faced volatility last year, along with private equity giants like Blackstone Inc., amid concerns that Trump's trade war would slow economic activity. Financial technology companies like Affirm Holdings Inc. and Block Inc. were prone to large fluctuations, as were stocks tied to cryptocurrencies. (alg)

Source: Bloomberg