Markets Whipsaw as Tariff Chaos Deepens and Legal, Legislative Battles Loom

U.S. equity markets opened the week under intense pressure, as President Trump doubled down on his global tariff strategy, warning investors that the market would have to "take its medicine". That ominous comment cast a long shadow over early trade, amplifying fears that these sweeping trade measures won’t be easily rolled back—if at all. For already-panicked investors, it set the tone: the bar for reversing this policy is high, and the path to clarity, much higher.

The morning session saw a flicker of hope when headlines briefly circulated that National Economic Council Director Kevin Hassett had suggested a possible delay to the tariffs. That sparked a knee-jerk rally in equity futures and intraday relief in high-beta names, particularly those battered by margin call-induced selling last week. However, the comments were quickly walked back as false, and markets slipped again. Still, something shifted.

That fake-out rally may have dislodged some of the more aggressive bearish positions. Until that moment, bears had been in control, confidently rolling down put strategies into ever-lower strikes. The sharp bounce caught many off guard. And in this kind of whiplash tape—where margin calls, political uncertainty, and broken narratives collide—bears are learning that even a false headline can trigger violent, liquidity-choking reversals.

There’s also a massive pile of cash on the sidelines—money-market assets just hit a record $7.4 trillion. The prospect of a short-covering rally, if catalyzed by even minor headline optimism or procedural delay, looms large. Wall Street knows this is a self-inflicted wound—one that can, theoretically, be reversed with the stroke of a pen. That optionality is what continues to attract dip-buyers, albeit cautiously.

At the center of the political resistance is Nebraska Congressman Don Bacon’s bill, which would require any presidential tariff to be approved by Congress or automatically sunset within 60 days. The bipartisan legislation has picked up momentum from key Republicans such as Chuck Grassley, Jerry Moran, Lisa Murkowski, and Mitch McConnell. Bacon said in a weekend interview that if the market keeps heading south or inflation starts to bite, “this bill becomes very viable.” The problem? Speaker Mike Johnson and House leadership remain publicly aligned with the president, meaning the bill faces an uphill climb just to reach the floor.

Beyond Capitol Hill, legal resistance is emerging. According to Fortune, the U.S. Chamber of Commerce is actively considering a lawsuit to challenge the legality of the tariffs under the Emergency Economic Powers Act—a law Trump has controversially invoked to justify his moves. A similar suit was recently filed by the New Civil Liberties Alliance on behalf of a small business owner, arguing the statute does not grant tariff powers. A successful court challenge would be a major relief valve for markets.

Another critical date to watch is the testimony of U.S. Trade Representative Jamieson Greer, who will appear before the Senate Finance Committee Tuesday and the House Ways and Means Committee Wednesday. He’s expected to face sharp questions not only from Democrats like Ron Wyden but also from GOP co-sponsors of the Bacon bill. Greer’s testimony could offer the first real opportunity to parse how dug in the administration truly is—or if there’s backchannel negotiation space.

Within the administration itself, the divide is increasingly visible. On one end is Peter Navarro, who in an interview Monday said “this is not a negotiation” and blamed “non-tariff cheating” by foreign nations for the U.S. trade deficit. He painted a future of zero tariffs from allies while touting the prospect of “the biggest tax cut in American history.” On the other side is Scott Bessent, who’s been advocating for more measured dialogue with trading partners, highlighting support from Japan and more cooperative talks on issues like subsidies and currency manipulation. Tariff doves are hoping Bessent’s voice becomes more dominant. The balance of power between these two could tilt the entire trajectory of trade policy—and the markets that react to it.

For now, traders remain trapped in a hyper-reactive tape where volatility is the only constant. With major selloffs wiping out over $5 trillion in market cap last week, and more retaliatory tariffs taking effect over the coming days, every headline matters. Sectoral tariffs on copper, chips, lumber, and pharmaceuticals could begin “anytime,” while China and the EU are expected to begin retaliating later this week. The next moves from Congress and the courts could prove decisive.

In this chaotic environment, discipline is key. Traders are advised to work smaller positions, use tighter stops, and avoid chasing headlines. The intraday gyrations will remain aggressive, and while V-shaped bounces are possible—especially as oversold conditions mount—they’re unlikely to be sustained without a real policy shift. Until then, tariff policy remains the market’s main character—and a deeply unpredictable one at that.