Oil prices surge to two-week winning streak as Iran supply fears grip markets
To address the many emails we received, we present our take on the Supreme Court’s tariff ruling.
First, President Trump has multiple ways he can implement trade restrictions beyond what the Supreme Court ruled against. In fact, he implemented a 150-day 15% global tariff after the court’s ruling. As we share below, the effective tariff rate is only 1% below its prior level.
The 15% tariff gives Trump time to enact new trade policies. Among the most likely are tax measures based on national security provisions. In addition, he could increase foreign-paid taxes through anti-dumping rules, targeted industry restrictions, procurement policy, or negotiated arrangements with other nations.
These options and others effectively function as tariffs but may likely survive judicial review. Trump’s tariff policy is not binary, allowed or blocked. In reality, the President and Congress possess a wide range of options to achieve similar economic outcomes, and we believe he will do so.
Second, the market was priced for this ruling. The betting markets were posting 75%+ odds that the Supreme Court would overturn tariffs. Despite reduced government revenue, bond yields opened slightly lower on Monday morning. Stocks are opening lower, but not by a meaningful amount.
It’s also worth noting that industrial and material stocks had been among the best performing. These types of companies were among the most affected by tariffs. Might their outperformance be the market front running the Supreme Court Decision?
When markets are already positioned for an outcome, the actual event tends to produce more short-term repositioning than a lasting fundamental shift. Our take is that the tariff ruling changes the legal pathway, not the broader trajectory of trade policy or the economic assumptions investors had embedded into prices.
Midcaps Lead The Way
Midcap growth stocks led the markets last week, rallying by over 2%. Breadth was better, with large-cap growth stocks up 1.75%. Value stocks underperformed slightly last week. While breadth was improved as judged by returns, the relative and absolute analysis shows a stark divergence between midcap growth and megacap growth.
With a relative score of 0.87, midcap growth stocks are extremely overbought on a relative basis. It is highly likely they start to underperform the market. That said, midcap and small-cap stocks were more impacted by the Supreme Court’s tariff ruling than larger stocks. Thus, the positive tariff impact may boost those stock factors for a while longer.
On the sector side, industrials remain grossly overbought. Here, too, however, the removal of tariffs may benefit some industrial stocks that import many of their parts or goods. Like midcap stocks, industrials are due for a relative correction.
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