The Trump Trade Survived the Court Blow - but Tariffs, Refunds, and Yields May Now Curb the Rally

The rally held because tariffs persisted, not because policy risk disappeared

The market's mistake would be to treat the Court ruling as a clean reset. It was not. After the Supreme Court struck down the emergency-based duties, the White House quickly replaced them with 10% and 12.5% tariffs on 60 trading partners covering 99.4% of U.S. imports. Investors did not sell off in a panic because the pressure did not fully vanish; it simply took a different legal form.

That distinction matters because the S&P 500 is still up more than 30% since the 2024 election. U.S. Bank's overview says that advance was supported primarily by corporate earnings growth rather than rising valuations. When a market absorbs one major policy shock and keeps climbing, investors can start treating the next headline as temporary noise. That is how anchoring becomes a liability.

The classic "Trump always blinks" story can also become a trap. Bulls can point to uncertainty, including roughly $175 billion in tariff refunds, and argue that fear will stay contained. But even a scaled-back tariff regime can pressure margins, raise costs for households, and keep pressure on Treasuries if refund uncertainty and deficit concerns revive selloff risk.

So the main risk is no longer just a single court defeat. It is assuming that a lasting tariff floor will not eventually show up in earnings, spending, or discount rates.

Why the bullish case has been partly right - and why it may now be overstretched

The rally is not being carried by pure speculation. Earnings have mattered, and the tariff regime has added a real fiscal element to the macro picture.

Tariffs have created a real fiscal cushion

The Tax Foundation estimates the Trump tariffs amounted to an average tax increase of $1,000 per US household in 2025. Reuters also reports that the new duties cover 99.4% of U.S. imports. That does not make tariffs a net positive for the economy, but it does help explain why the market did not simply shrug off the Court setback: the policy pressure remained substantial.

That is why bulls have been right, at least so far. Markets have rewarded resilience, and corporate profits have mattered more than multiple expansion. The error now is to confuse a real cushion with a free pass.

The Court changed the process, not the underlying pressure

The Supreme Court removed the fastest route - tariffs under IEEPA - and replaced it with authorities that are more constrained, often requiring greater process or carrying time limits. Even so, the White House quickly moved to 10% and 12.5% tariffs on 60 trading partners covering 99.4% of all U.S. imports, so policy pressure did not disappear.

The psychological shift matters. Emergency tariffs invite an all-or-nothing trade. A slower statutory regime is more likely to play out in increments. That can be harder for markets to front-run because investors can mistake each manageable announcement for evidence that the cycle is being tamed.

The bias stack investors should watch

• Recency bias: traders treat calm headlines as proof the threat is fading.
• Confirmation bias: bulls focus on fiscal absorption and steady earnings while downplaying incremental tariff creep.
• Anchoring: the market keeps comparing policy to the worst emergency phase instead of to a slower macro drag.
• Herd behavior: after a strong rally, investors overextend the "tariffs are contained" story because fading it feels costly.

What could end the next leg of the Trump trade

The next repricing does not need another dramatic court headline. It needs the market to stop treating tariffs as negotiation theater and start pricing them more fully as a structural regime. That shift is already visible under the new 10% and 12.5% tariffs on 60 trading partners.

What could flip the tape

Part of the market is still leaning on the relief offered by roughly $175 billion in tariff refunds. If that relief remains uncertain while the levy stays in place, sentiment can turn quickly. Dip-buyers have been trained to expect step-downs after headline spikes, but that pattern can break when losses start to feel more permanent than temporary.

When that happens, investors are more likely to price tariff friction into margins, discount rates, and exchange rates rather than assume it will all pass quickly.

What to watch now

• Whether refund uncertainty stays high or begins to settle.
• Whether tariff pressure remains broad under the current 60 trading partners framework.
• Whether Treasuries start reflecting both deficit concerns and renewed tariff-related inflation pressure.

Positioning and invalidation

The practical setup is selective rather than blanket: favor businesses with domestic input exposure, pricing power, and less reliance on refund-driven relief; stay lighter on tariff-sensitive importers and retailers; and treat exporters as policy-sensitive rather than automatically attractive.

A reasonable invalidation would be a clear reduction in refund uncertainty around $175 billion in tariff refunds, calmer Treasury conditions, and policy remaining confined to the current structure. If that happens, the market can keep living on relief instead of repricing tariffs as a durable drag.