CNBC Daily Open: The Supreme Court might not have the last word on Trump tariffs

The U.S. Supreme Court expressed significant skepticism regarding the legal basis of the Trump administration's "reciprocal" tariffs, causing prediction markets to sharply reduce the likelihood of their continuation. While this initially led to a rebound in U.S. stock markets, analysts warn that a potential court mandate for duty refunds could increase government debt, elevate Treasury yields, and subsequently pressure equities, with the added uncertainty of former President Trump potentially reinstating tariffs through other executive powers.

Analysis

The U.S. Supreme Court's apparent skepticism regarding the legal basis of the Trump administration's "reciprocal" tariffs has significantly shifted market expectations, with Polymarket odds for tariffs holding dropping from 50% to 25%. This development initially spurred a rebound in major U.S. indexes on Wednesday, reversing previous losses, indicating a positive immediate market reaction to potential trade barrier reduction.

However, the prospect of a court-mandated refund of collected duties, which Wolfe Research finds lacking strong legal argument, introduces significant fiscal risk. Such a move could further burden U.S. government debt, likely leading to increased Treasury yields, as observed on Wednesday, which would pressure equity valuations. Furthermore, the possibility of former President Trump employing alternative executive powers to reinstate tariffs creates ongoing policy unpredictability for businesses and markets, as noted by Mitchell Goldberg.

Amidst this macroeconomic uncertainty, specific corporate news provided clearer signals. Snap Inc. (SNAP) demonstrated strong performance, beating revenue expectations, raising guidance, and announcing a $500 million stock buyback, leading to a 15.5% surge in extended trading. Conversely, Chinese robotaxi firms Pony.ai (PONY) and WeRide (WRD) experienced a challenging debut in Hong Kong, with shares slumping over 14% and 12% respectively, reflecting potential sector-specific or regional investor caution.

Key Decisions for Investors

• Investors should closely monitor the Supreme Court's final ruling on tariffs and its implications for U.S. government debt and Treasury yields, as sustained higher yields could pressure equity valuations.
• Consider evaluating companies with strong, clear growth catalysts and positive guidance, such as Snap Inc., while exercising caution with new market entrants in volatile sectors like Chinese robotaxi firms.
• Given the ongoing policy uncertainty surrounding trade and potential for renewed tariff discussions, investors should assess portfolio resilience and consider diversification strategies against geopolitical and regulatory shifts.