Weekly Gain For Equities Despite Tariff Ruling

After 3 weeks of declines, equities stabilized somewhat and saw some gains. Technology stocks, which are down approximately 2% for the year, and the Mag 7

specifically, which are down 6% year-to-date, have pulled the S&P 500 Index down because they make up more than 30% of the index. However, the other 493 names in the index are rallying. In fact, the number of stocks in the S&P 500 Index that are actually out-performing the index itself are at the highest mark in history. In other words, we may be seeing one of the broadest rallies in equities history. That, by the way, is bullish, not bearish.

On Friday of last week, the Supreme Court announced its ruling (6-3) striking down many, but not all, of the tariffs enacted by the Trump Administration in 2025. Most

specifically, those tariffs enacted under the International Emergency Economic Powers Act (1977) were deemed invalid as having been raised during "peacetime." However, the President has other means of enacting tariffs under multiple sections the 1974 Trade Act and the 1930 Tariff Act (as shown in the table). What is less certain is how previous tariffs will be refunded. The Court did not provide a mechanism or timing with regard to the refunds. In addition, data collected by the Federal Reserve shows that 40% of last year's tariffs were paid by U.S. businesses, 40% by U.S. consumers, and 20% by foreign exporters. So far, over 1,500 global companies have filed trade court claims for tariff refunds. From a country perspective, China and the EU potentially have the most to gain with the Supreme Court's ruling as they suffered the most from tariffs enacted in 2025. However, within hours of the Supreme Court's ruling, Trump increased global tariffs of up to 15% under Sections 232 and 301, as noted above. Depending on how things shake out from this recent ruling, the U.S. consumer might see a refund or perhaps lower overall tariff rates which could translate into lower inflation rates.

The 4th quarter GDP report was released on Friday and was disappointing to say the least. The market was expecting GDP to come in at +3.0%, but the preliminary number

was +1.4%. The data in the BEA's report shows that government spending was down -0.9%. The government shutdown in October of last year is being blamed for the drop. So far, the Atlanta Fed, which clearly under-estimated the effects of the government shutdown in their Q4 number, has already estimated Q1 GDP to come in at +3.1%. Could the Atlanta Fed be under-estimating a rebound in government spending in Q1? The Weekly Economic Index tracked by the St. Louis Federal Reserve would indicate that economic growth is strong and improving in Q1. Industrial Production for January came in higher at +0.7% versus +0.4% expected. Likewise, Manufacturing Production came in at +0.6% versus +0.4% expected. Revenue growth for S&P 500 companies is the highest in almost 3 years. Economic growth will matter more and more in order for momentum stocks to recover.

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