How Will the Supreme Court’s Tariff Ruling Affect the Economy & Markets?

February 21, 2026

Sean Gross, CFP®, AIF® | Co-Founder & CEO

 

• On February 20, 2026, the Supreme Court ruled 6-3 that the broad tariffs enacted by the White House under the International Emergency Economic Powers Act (IEEPA) were illegal. This matters for investors because trade policy has been a major source of market volatility and has affected all parts of the economy. 

• The ruling struck down tariffs on virtually every country tied to trade deficits, as well as those on Mexico, Canada, and China over fentanyl concerns, though smaller tariffs on steel, aluminum, and cars remain in place. This includes the "reciprocal tariffs" that were announced during last April's "liberation day."

• It's unclear whether refunds will be provided and how they will be enacted. Thousands of businesses were part of the lawsuits that made their way to the Supreme Court, so this could impact many sectors. According to data from U.S. Customs and Border Protection, roughly $90 billion of the approximately $195 billion in tariffs collected under IEEPA may need to be refunded.

• The White House has already moved to re-enact tariffs under other legal frameworks; however, these laws have procedural limits and may not allow tariffs as sweeping as the ones struck down. So, while the Supreme Courts’s ruling minimizes one tool the administration has been using for international negotiations, they may still be able to implement tariffs in other ways, but with more limitations. 

• The chart below shows the level of import tariffs across different countries. These tariffs have led to short-term volatility, but the market has remained remarkably resilient over the past year.

• Bottom line: While policy changes like this can create short-term uncertainty, it is worth remembering that corporate earnings, economic growth, and valuations tend to be the true drivers of long-term market performance.

January 2026 Market Chartbook

Sean Gross, CFP®, AIF® | Co-Founder & CEO

Click here to view our January 2026 Market Chartbook.

January 2026 Market Review: Navigating Fed Policy, Geopolitics, and Precious Metals

February 9, 2026

Sean Gross, CFP®, AIF® | Co-Founder & CEO

 

Equities and fixed income began the year on a positive note, extending the momentum from prior years. This outcome may have caught some market participants off guard given multiple bouts of turbulence stemming from geopolitical developments and Federal Reserve policy decisions. Though news flow generated near-term fluctuations, including the S&P 500's steepest decline since the previous October, markets recovered swiftly. Within a matter of days, benchmark indexes touched fresh record highs, bolstered by robust corporate earnings that have underpinned portfolios.

For those with extended investment horizons, January offers an important lesson that news cycles can influence markets in unexpected directions, yet underlying fundamentals and strategic planning remain paramount. Although geopolitical developments and policy ambiguity will probably generate additional turbulence during 2026, the optimal approach to managing these obstacles continues to be a flexible, well-balanced portfolio consistent with long-range financial objectives.

Principal Market and Economic Factors in January

• The S&P 500 advanced 1.4% during January and momentarily surpassed 7,000 for the first time on an intraday basis. The Nasdaq Composite increased 0.9% while the Dow Jones Industrial Average posted a 1.7% gain.
• The CBOE VIX volatility gauge concluded the month at 17.44 following an increase above 20 amid geopolitical pressures.
• The Bloomberg U.S. Aggregate Bond Index edged up 0.1% throughout the month as longer-dated interest rates moved higher. The 10-year Treasury yield finished the month at 4.24%, representing the peak level since the prior September.
• International developed markets surged 5.2% in U.S. dollar terms according to the MSCI EAFE Index, whereas emerging markets rose 8.8% per the MSCI EM Index.
• President Trump announced Kevin Warsh as his nominee for the next Fed Chair. Should the Senate confirm him, he would assume the position in mid-May.
• Gold climbed to a record closing price of $5,417 per ounce before dropping nearly 10% on January 30.
• In parallel fashion, silver reached a closing high of $116.70 before declining sharply to end the month at $85.20.
• The U.S. dollar index declined further to approximately 97.0, hitting its lowest point in close to four years, before recovering modestly after the Fed Chair announcement.
• The Federal Reserve maintained its policy rate at 3.50 to 3.75% during its January gathering, after three straight quarter-point reductions in the latter half of 2025.
• Consumer Price Index inflation held steady at 2.7% year-over-year in December, remaining above the Fed's 2% objective. The Producer Price Index rose to 3.0%.
• Washington concluded the month experiencing a partial government shutdown.
• Harsh winter conditions throughout substantial portions of the Eastern and Southern United States prompted natural gas and electricity prices to surge.

 

Geopolitical pressures elevated market volatility

Early during the month, a U.S. operation in Venezuela led to the detention of Nicolás Maduro. Although the operation focused on narco-terrorism, considerable attention rapidly shifted toward oil. Venezuela possesses the world's largest confirmed oil reserves yet produces less than 1% of worldwide crude output owing to inadequate infrastructure. For market participants, the main pathway through which geopolitical developments influence financial markets runs through commodity valuations, with oil maintaining its central role in the worldwide economy.

Geopolitical anxieties intensified further following U.S. commentary about acquiring Greenland given its strategic significance for defense and commodities. This triggered diplomatic friction with NATO nations involving tariff measures that produced the S&P 500's sharpest decline since the previous October. Nevertheless, the circumstances rapidly cooled down after President Trump convened with the NATO secretary general and created a "framework of a future deal," prompting the market to rally.

For investors focused on the long term, geopolitical developments may generate near-term ambiguity though historical evidence indicates that their impacts on markets and the economy are frequently exaggerated. Markets have generally bounced back as the initial disruption subsides. Investors ought to refrain from overreacting to news cycles and instead preserve a long-range emphasis on financial objectives.

Fed-related concerns influenced gold, silver, and the dollar

Precious metals sustained their advance until a substantial reversal on January's closing day. Gold climbed to almost $5,600 on an intraday basis whereas silver's spot price topped $120 per ounce before both experienced selloffs. These movements have been propelled by multiple elements including geopolitical risk, central bank acquisitions, and apprehensions regarding Federal Reserve independence.

The forces propelling gold and silver have been characterized as the "debasement trade," representing the notion that fiscal and monetary policies that effectively diminish the dollar, generate deficits, and contribute to inflation might bolster precious metals. Fed ambiguity, encompassing whether a new Fed chair could advocate for lower interest rates, has pushed these metals upward.

Nevertheless, on January 30, President Trump revealed his intention to designate Kevin Warsh as the subsequent Fed Chair once Jerome Powell's term concludes in mid-May. Warsh is a former Fed governor who has recently indicated that he favors lower interest rates. Though, he has also demonstrated hawkish tendencies historically, signifying he has supported maintaining rates elevated to combat inflation. For market participants, this altered expectations as it implies there might be a more seamless transition between Fed Chairs. This resulted in a sharp decline in both gold and silver, with the dollar rising modestly.

This reversal highlights both that precious metals are susceptible to boom-and-bust patterns and illustrates how rapidly markets can pivot based on policy expectations. Although precious metals can benefit investors, their volatility throughout January shows why they need to complement, instead of substitute, core allocations in stocks and bonds.

Corporate earnings stayed solid despite uncertainty

Apart from the primary global developments, the fourth quarter earnings revealed that companies continue to deliver strong results. Per FactSet, 33% of S&P 500 companies have disclosed results and 75% have exceeded expectations. Should these patterns persist, large public companies might be positioned to reach a growth rate of 11.9% for the quarter, marking the 5th straight quarter of double-digit earnings expansion. On a trailing 12-month basis, earnings growth has risen to 12.8% per consensus projections.

Understandably, numerous investors are concentrating on AI and technology earnings given these stocks have driven market returns throughout the past several years. Thus far, markets have exhibited varied responses to the earnings of these companies, even when they surpass estimates, attributable to elevated expectations and uncertainties surrounding the sustainability of this spending. Simultaneously, numerous other sectors have gained from broad economic expansion and have increased their earnings at an accelerated pace as well.

For investors with extended time horizons, the fundamental message from earnings season is encouraging. Corporate profitability stays robust across numerous sectors, validating stock valuations. This foundational strength is one explanation major indexes remained positive for the month notwithstanding significant volatility.

Harsh weather impacted substantial portions of the country

January's harsh winter conditions, designated Winter Storm Fern, impacted no fewer than 21 states and over half the U.S. population. The storm necessitated state emergency declarations and produced disruptions to economic operations, encompassing power failures and thousands of flight cancellations.

Although the welfare of those impacted by the storm is the foremost priority, historical evidence demonstrates that weather-related disruptions such as hurricanes and blizzards have minimal long-term impact on the national economy. The crucial difference is whether these events influence productive capacity such as factories, equipment, and businesses, or whether they merely defer activity. In this instance, temporary disruptions to sectors such as retail and construction simply relocate economic activity forward.

The bottom line? January witnessed market turbulence stemming from geopolitics, the Fed, and additional factors. Nevertheless, markets demonstrated resilience and solid corporate earnings have pushed major indexes to fresh record highs, even as precious metals faltered. For investors with long-term horizons, this reinforces the significance of sustaining an appropriate asset allocation that aligns with financial objectives.

Guest Article: Do Americans Really Pay 96% of the Tariffs?

We are delighted to share, with permission, the following article from highly esteemed economist Daniel Lacalle, PhD.1

Daniel Lacalle

January 24, 2026

The Congressional Budget Office has revised its estimates and states that the tariff increases implemented from January 6, 2025, to November 15, 2025, will reduce the primary deficit of the United States by $2.5 trillion over 11 years if they remain in place during the 2025–2035 period. Tariff revenues have risen to $90 billion between October and December 2025, compared with $20 billion in the same period in 2024. However, year-over-year inflation during that period is actually lower.

Inflation in the United States has not surged to 5–6%, as some investment banks had predicted following the tariff announcements. In fact, the year-over-year CPI, the PCE Index, and import prices reported by customs and border offices show no discernible increase in year-over-year inflation and are certainly very far away from the consensus estimates.

The year-over-year CPI in the U.S. stood at 2.7% in December, with a monthly increase of 0.3%, according to the latest data from the Bureau of Labor Statistics. The main drivers of inflation are housing and services, which have nothing to do with tariffs. Core inflation (CPI excluding food and energy) stood at 2.6% year-over-year in December, with a monthly advance of only 0.2%, the lowest level in about four years. Core inflation has stabilized around 2.6%, well below what was feared a few months ago, reinforcing the perception that underlying pressures are moderating even though services remain relatively “hot.”

The U.S. import price index rose 0.4% in the September–November 2025 period, with a 0.7% year-over-year increase for non-energy imports. Within imports, prices from China fell 3.6% year-over-year in November, while those from Japan rose 2.6% and those from the EU fell 0.1%. Customs import prices are falling, especially from countries facing higher tariffs.

Moreover, U.S. export prices increased 0.5% in the September–November 2025 period, especially in agricultural goods and motor vehicles.

According to the BLS, import prices rose only 0.1% in the twelve months ending in November, while export prices increased 3.3%. Since these figures exclude tariffs, they show that inflationary pressures are not coming from imported products nor tariffs.

If both import and export prices rise but import prices barely move, the effect of the tariffs is being absorbed throughout the supply chain, particularly in locations with the greatest excess capacity. In other words, exporters, distributors, transportation, and warehousing absorb most of the tariffs in the chain because the cost of working capital for elements of the chain with greater excess capacity makes passing tariffs on to the consumer unfeasible.

Despite this, you will read studies by Cavallo or the Kiel Institute that claim the opposite. Alberto Cavallo’s estimates use January 2024 as the cutoff for the pre-tariff trend calculation. However, after a brutal inflationary burst in 2021–2024, the last year appears artificially “disinflationary.” If one looks at the 2021–2024 series, the trend is of continued disinflation. The inflation trend in 2025 is lower than in the Biden years, even in the eighteen months that led to Fed easing and rate cuts.

The Federal Reserve Bank of Atlanta published that businesses anticipate their costs will rise just 2.0 percent over the next year, down from 2.2 percent in December, the lowest level in the post-pandemic era.

The Kiel Institute study “America’s own goal: Americans pay almost entirely for Trump’s tariffs” is statistically questionable for several technical and identification reasons. Economists like Stephen Moore and E.J. Antoni have pointed out some surprising assumptions, and John Carney wrote extensively about major statistical biases in “Debunking the myth that Americans are paying 96% of tariffs,” concluding, “It does not prove 96 percent of costs fall on Americans. It does not prove consumers pay higher prices. And it certainly doesn’t prove tariffs are an “own goal.”

The most surprising factor is that the Kiel Institute attributes almost the entire price movement trend in the United States to tariffs while ignoring that the same trend is similar or even larger in the United Kingdom, European Union countries like Spain, or Japan. If U.S. exporters raise prices up to three times faster for the same categories than those exporting to the United States, the explanatory factor of price moves in America is not tariffs and has much more to do with other factors, as well as the widespread deterioration in the purchasing power of currencies in the countries analyzed.

The key result behind the headline circulating in the media—that exporters absorb 4% and the U.S. absorbs 96% of tariffs—is based on a coefficient of approximately −0.039 with a standard error of 0.024, which is only significant at the 10% level, showing a very noisy estimate despite having 25.6 million observations, Carney explains. With that level of imprecision, the implicit confidence interval itself allows for exporter absorption between 0% and 9%, so presenting “4%” as a precise figure creates an illusion of accuracy that the data do not support. Furthermore, the study interprets the increase in average imported prices as evidence of tariff pass-through but ignores that total imports (value and volume) fall by 28%, with low-cost suppliers exiting the market. If cheap products disappear and only mid/high-end ones stay, the average price rises even though the reality shows that prices within each category have not increased, as reflected in customs and final consumer data. Thus, the change in the quality mix can be mistaken for a price increase “due to tariffs.”

Tariffs are applied at very disaggregated levels (HS8/HS10), but surprisingly the Kiel study works with data at the HS6 level, which is much more aggregated, according to Carney. This forces the use of an average tariff rate for products with very different actual tariffs or even no tariffs at all. That poor measurement of the tariff (as an explanatory variable) introduces an error that biases coefficients toward zero, making it easier to “find” a little price response and reinterpret it as proof that almost all the cost falls on the U.S. If the same analysis is done for non-energy products in the United Kingdom, Japan, Germany, Spain, or France, for example, it would appear that tariffs are being paid by Americans and all foreigners at the same time, which is obviously ludicrous. If both tariffed and non-tariffed goods show increases in unit values, the differential comparison is artificially reduced.

Even if the estimates on import prices were correct, the study assumes without evidence that 96% is passed on to consumers, without analyzing retail prices, business margins, or the distribution of incidence along the supply chain.

The claim that it is basically a “consumption tax” passed on 96% to Americans is presented as an empirical conclusion, when in reality it is a personal extrapolation without direct statistical backing, Carney concludes.

If the report’s conclusions—based on several surprising assumptions—were correct, then year-over-year inflation, core inflation, and the U.S. PCE Index would have more than doubled the published levels. The PCE Index would have more than doubled the published levels. The study assumes that all price increases are explained by tariffs, primarily by ignoring the upward trend in individual prices and baskets in exporting countries as irrelevant. If US export prices rise three times faster than import prices, and higher if analyzed category by category, it is clear that exporters to the US are not passing tariffs to final prices. When import prices from the EU fall, and China’s prices decline is so significant, it is also a signal of easing inflationary pressure, not the opposite.

Moreover, by ignoring the fact that the most “inflationary” categories in U.S. data are services, which are not subject to tariff pressure, the analysis reaches conclusions that are surprising and raise more doubts than certainties. The data shows that services, which are not affected by tariff pressure, are the most “inflationary” categories in the U.S., leading to conclusions that are surprising and create more doubts than certainties. Furthermore, we should see rising margins and lower prices among exporters selling to the U.S., but the opposite has occurred.

Even in the Kiel Institute report, they say that exporters largely kept pre‑tariff dollar prices, which is a reduction in constant dollar terms considering that the US dollar weakened in 2025 against exporter currencies. Furthermore, the study says that their per‑unit margins in the US did not rise and they accepted lower volumes and lost market share. If Americans have consumed more, as the data indicates, and prices have not gone up in constant dollars, while exporters have lost market share and their profits haven’t improved, the report is recognizing that price changes can’t be blamed on tariffs but rather on many other factors in a complicated trading situation.

Tariffs will remain a fascinating topic of debate for a long time, and studies are always valuable, but the evidence—almost a year later—is that the components of inflation data do not show slowing but persistent inflation (a phenomenon occurring in all comparable countries) to be caused by tariffs. With the level of excess capacity that exists in the global exporting system, it is clear that the supply chain absorbs tariff costs wherever pricing power is weakest.

1Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

December 2025 Market Chartbook

Sean Gross, CFP®, AIF® | Co-Founder & CEO

Click here to view our December 2025 Market Chartbook.