Stocks Shake Off Tariff Shock; Bonds Drift as Fiscal Questions Linger

Stocks rallied to close out a solid week after the Supreme Court struck down President Trump’s broad tariff program, with investors viewing the decision as more of a fiscal complication than an economic shock. Equities advanced broadly, led by large-cap tech, while Treasuries and the dollar softened modestly as markets weighed potential implications for government borrowing. The move came despite mixed economic data showing slower growth and still-firm inflation, reinforcing expectations that the Fed will remain patient.

Key Headlines & Market Movers:

• Supreme Court Rejects Broad Tariff Authority: In a 6-3 ruling, the Supreme Court curtailed the administration’s use of emergency powers to impose sweeping tariffs, though President Trump signaled he will pursue alternative legal channels to maintain trade levies. Treasury Secretary Scott Bessent said tariff revenue should remain largely intact next year, suggesting policy recalibration rather than reversal. Markets appeared to conclude that trade policy uncertainty will persist but is unlikely to materially alter the near-term economic trajectory.
• Growth Slows While Inflation Stays Sticky: Fourth-quarter GDP rose at a 1.4% annualized pace, a sharp deceleration from the prior quarter, while the Fed’s preferred core PCE gauge accelerated to 3% year over year. The combination of cooling growth and firm inflation underscores a “higher for longer” policy backdrop and supports the Fed’s cautious stance. Rate markets were relatively contained, with the 10-year yield hovering around 4.1%, reflecting expectations that policy will remain steady absent a clearer disinflation trend.

Tech Leads as Policy Volatility Fades into Background: More than 300 S&P 500 constituents advanced, with megacap technology names driving gains and the Nasdaq outperforming to snap a multi-week losing streak. Investors appeared willing to look through tariff headlines, treating them as tactical noise rather than a structural shift. In rates, bond traders focused more on potential deficit funding implications than on growth or inflation spillovers, keeping longer-dated yields within recent ranges.

S&P 500 Sector Performance

Looking Ahead

Markets will continue to study how the administration restructures its tariff strategy and whether that meaningfully alters revenue projections or borrowing needs. At the same time, investors will watch incoming inflation and labor data for confirmation that price pressures are easing enough to give the Fed flexibility later this year. For now, equities are responding positively to reduced policy overhang, but rate sensitivity remains elevated as fiscal and monetary dynamics intersect.

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