By Suzanne McGee and Davide Barbuscia
(Reuters) -Wall Street is bracing for another bumpy ride ahead of a forthcoming Supreme Court decision on the constitutionality of tariffs that could throw Corporate America into turmoil and raise questions over the country’s fiscal health.
The plunge in asset prices in early April in the wake of U.S. President Trump’s Liberation Day tariff announcements offers Wall Street a taste of what some believe may be in store if courts opt to overturn a tariff regime to which market participants have become accustomed.
Since then, the administration has announced an array of trade deals and companies have found ways to absorb some of the costs. Markets in turn have recovered and moved on to set fresh highs.
In spite of the Supreme Court hearing the case on an expedited basis, some market participants said they expect a ruling to take a month or even longer following oral arguments. The Supreme Court’s public information office said that opinions on any case are generally released during the term in which it is argued. The current term ends June 6, 2026.
“Upholding the tariffs would simply be the court saying the status quo is fine, and markets have now accepted that status quo,” said Rob Arnott, chairman of investment firm Research Affiliates. “Reversing them would cause massive uncertainty, and markets hate uncertainty more than anything.”
Companies may get a big one-time boost if the Supreme Court combines a decision that the tariffs are unconstitutional with a ruling that they are in line for refunds, a sum that TD Bank rate strategists could total $100 billion. But some caution that such a tailwind could be offset by the headwind of greater uncertainty and the prospect of more political and legal battles.
“Trade uncertainty would ratchet higher,” said Doug Peta, chief U.S. strategist at BCA Research. “Businesses might pause investments and freeze hiring. Households might tighten their purse strings.”
All of which, Peta said, could translate into U.S. stock indexes falling from recent record levels and credit spreads widening still further.
“Financial markets have made their peace” with the impact of tariffs on inflation, economic growth and asset prices, said Peta.
At issue before the Supreme Court is whether Trump overstepped his authority by invoking the 1977 law known as the International Emergency Economic Powers Act (IEEPA) in imposing tariffs, as the plaintiffs argue. Not just the nature but also the scope and details of any ruling — and the administration’s response — complicate investors’ ability to analyze just how markets may react.
“There are so many wild cards in the mix here,” said Alex Morris, CEO of F/m Investments, an asset management firm.
Refunds are just part of the puzzle. For instance, if the court mandates refunds at all, it would need to decide who is entitled to receive one.
“A broad refund would be like a surprise stimulus check for corporate America,” said Michael Reynolds, vice president, investment strategy at Glenmede Trust. That could trigger a further rally in stocks, he said.
But even if the Supreme Court does rule against the administration and mandate refunds, any rally may be the equivalent of a sugar high, Reynolds and others caution, given that Trump can reimpose tariffs using other mechanisms, even if these are more logistically complex.
Reports from economic research teams at firms like Goldman Sachs and Morgan Stanley agree that the administration likely would simply use other powers to concentrate on individual trading partners or business sectors.
DEFICIT QUESTION
Bond markets could see a similar pattern of relief giving way to uncertainty.
Jeff Given, head of developed market fixed income at Manulife Investment Management, said he expects Treasury securities to demonstrate some “temporary” relief if the Supreme Court deems the IEEPA tariffs unconstitutional, since it would reduce some of the inflationary pressure they may have created for markets.
However, markets will need to consider what this means “for longer term issuance and budget deficits, and how are we going to make up for the revenue that we’re trying to cover with the tariffs,” Given said.
S&P Global Ratings and Fitch affirmed their ‘AA+’ U.S. sovereign debt ratings in August, saying that a surge in revenue from Trump’s tariffs could reduce the deficit.
The prospect of refunds makes that outlook bleaker, cautions Scott Lincicome, vice president of general economics and trade at the Cato Institute, a think tank.
“While the big companies would find themselves with millions or billions of “found” money, the U.S. fiscal condition deteriorates.”
For Lincicome, the biggest question is how markets will process all the uncertainty following any ruling, adding that a decision in favor of the tariffs would simply inject a different kind of uncertainty into the mix, potentially prompting “a selloff as everyone tries to understand what that means for more erratic trade policy decisions.”
“One way or the other this is a giant spaghetti bowl of a tariff mess, and trying to predict what happens next is a fool’s errand,” Lincicome said.
(Reporting by Suzanne McGee and Davide Barbuscia; editing by Megan Davies)
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