Markets gyrate as tariffs struck down by Supreme Court

The much-anticipated Supreme Court decision on the legality of tariffs was issued on Friday. The high court determined that President Donald Trump overstepped his legal authority when he used the Emergency Powers Act to impose wide-ranging global tariffs, a cornerstone of his economic and policy agenda.

The S&P 500 and tech-heavy Nasdaq 100 rose 0.3% and 0.6%, respectively, at last check, while Treasury Bill and Note yields were largely unchanged. Retail stocks, which are heavily exposed to tariff costs, were mixed, with e-commerce stocks Amazon (AMZN) and Shopify (SHOP) up 1.6% and 4.6%, respectively, and Walmart down 2.4%.

The decision creates uncertainty about whether President Trump will pivot, maintaining tariffs through other means, and whether companies that have paid over $100 billion in import taxes will receive refunds.

"IEEPA does not authorize the President to impose tariffs. The judgment in No. 24–1287 is vacated, and the case is remanded with instructions to dismiss for lack of jurisdiction," read the Supreme Court ruling.

A walk-back of tariff policies, which had increased the effective tariff rate paid by U.S. companies to 16.9% from 2.4% in January 2024, according to Yale Budget Lab, has big implications for inflation, the U.S. deficit, and markets.

Up to $175 billion in tariff revenue in play

The Supreme Court voted 6 to 3 that the President's tariff program exceeded powers granted by the International Emergency Economic Powers Act, or IEEPA.

Steel and aluminum (imposed under Section 232) and unfair trade practices (Section 301) tariffs generally remain in place for now.

I've been covering tariffs closely, and as I wrote previously, Morgan Stanley estimates that Tariff revenue in 2025 was $287 billion, with an estimated $140 billion from tariffs under IEEPA.

A recent Penn Wharton study for Reuters estimates that up to $175 billionin collected tariffs could be targeted for refunds for the U.S. Customs and Border Protection agency.

Writing for the dissent (minority), Justice Brett Kavanaugh said the government has collected over $130 billion in IEEPA tariffs.

How Supreme Court justices voted to repeal tariffs:

• John Roberts, for majority (repeal)
• Sonia Sotomayor, for majority (repeal)
• Elena Kagan, for majority (repeal)
• Ketanji Brown Jackson, for majority (repeal)
• Neil Gorsuch, for majority (repeal)
• Amy Coney Barrett, for majority (repeal)
• Clarence Thomas, for minority (against repeal)
• Samuel Alito, for minority (against repeal)
• Brett Kavanaugh, for minority (against repeal)

The enacted tariffs are considered the major driver of the inflation rebound. The Personal Consumption Expenditures (PCE) inflation rate -- the Fed's favored inflation measure -- was 2.9% in December, up from 2.3% in April, before most tariffs kicked in.

Harvard's Pricing Lab estimates that retail prices of imported goods at major retailers increased by 6.8% more than they would have without tariffs.

Tariffs also had a major impact on investors' portfolios in 2025, given that the S&P 500 fell nearly 20% from its peak in February to its early April low during the so-called "tariff tantrum" before rallying sharply last summer on trade deal optimism.

MoreEconomic Analysis:

• Ernst & Young drops blunt reality check on the economy
• Federal Reserve official blasts latest interest-rate pause
• IMF drops blunt warning on US economy

The IEEPA grants authority to enact trade policies during emergencies. President Trump enacted tariffs after declaring emergencies relating to cross-border drug smuggling and persistent trade deficits.

Heading into the Feb. 20 Supreme Court decision, Polymarket odds suggested a 25% chance that the Supreme Court would uphold tariffs. Kalshi similarly had the odds near 25%.

The Supreme Court had options beyond a complete rollback. Morgan Stanley previously outlined outcomes ranging from prospective relief, leaving existing tariffs in place but prohibiting future tariffs under IEEPA, to a partial overturn.

Ultimately, the Supreme Court opted against half measures.

Tariff impact on stocks, markets

The prediction market odds were already tilted toward the Supreme Court overturning President Trump's tariffs, so while there may be knee-jerk reactions by investors, Wall Street was already anticipating the outcome.

President Trump has other options to keep tariffs in place under other authorities, but the tariffs aren't likely to be as sweeping.

• Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862): Authorizes the US President to impose tariffs or import restrictions deemed a threat to national security by the Department of Commerce after an investigation.
• Section 301 of the Trade Act of 1974: Authorizes actions if an investigation under Section 301 concludes the rights of the United States under any trade agreement are being denied, or an act, policy, or practice of a foreign government is burdening or restricting U.S. commerce.

"Trump has long given assurances that if the court rules against him that he has other legal ways to put the tariffs back on. We are about to find out," said fund manager Louis Navellier in a note shared with TheStreet.

The impact of rolling back tariffs would be to remove the inflationary tailwinds that are keeping the Federal Reserve from lowering interest rates.

The Fed's dual mandate is to set monetary policy to promote low unemployment and inflation. The mandate has been in conflict over the past year as both unemployment and inflation have risen.

In January, the Fed decided to hold rates steady following three consecutive interest rate cuts to gain greater insight into how inflation and unemployment trends are evolving. The unemployment rate slid to 4.3% in January from 4.5% in November.

The CME's FedWatch tool, which calculates changes to the Fed Funds Rate based on futures market trading, shows odds of a cut at the next meeting on March 28 of 4%, down from 5.4% yesterday because of sticky PCE inflation concerns.

If inflation retreats due to the Supreme Court's decision, it would be good for corporate revenue and profits, giving the Fed more flexibility to cut interest rates. As rates fall, household and business spending rise, leading to job growth.

"Tariffs had been functioning as a shadow tax that helped fund spending without explicitly raising taxes. Remove that and the deficit widens, borrowing rises, and historically that is the type of development that leans on the bond market and pressures yields higher," wrote Mark Malek. "Good for earnings, not exactly comforting for bonds."

Market early reaction to Supreme Court tariff decision:

• S&P 500 ETF, up 0.39% at 1pm EST on Feb. 20.
• Short-term Treasury bills, which most closely track the Fed Funds Rate, were mostly unchanged after the Supreme Court announcement, yielding 3.486%, up 0.01%.
• The 10-year Treasury Note, which banks use to set mortgage rates and companies and investors use as the risk-free rate for decision-making, is at 4.094%, up 0.02%.
• Gold, up 1.18% to $5,057 per ounce.

Related: Moody's delivers blunt 6-word verdict on economy

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published February 20, 2026 at 10:07 AM.