Market Update
Last week U.S. equity markets reacted to several global macro catalysts, however certain themes such as AI and inflation remained in focus as well. The biggest story of the week was on Friday when the Supreme Court struck down President Trump’s tariffs, ruling that the International Emergency Economic Powers Act (IEEPA) does not give the President authority to unilaterally impose tariffs. There was nothing in the ruling that explicitly said the tariffs need to be immediately refunded to importers, making it likely that the refund process will be complicated and lengthy. Certain goods such as those on aluminum, steel, and semiconductors are deemed national security tariffs and fall under Section 232 and thus will remain in place. President Trump retaliated by announcing a 15% global tariff and threatened a higher tariff rate on automobiles, as autos could fall under Section 232. While the removal of the IEEPA tariffs is obviously a positive for firms, if a global tariff is implemented and President Trump is able to implement more tariffs through alternative ways, then it’s unclear what the net impact will be. For now, there’s too much uncertainty to speculate on the ramifications to the US economy.
Besides tariff news, the preliminary estimates for Q4 GDP came in much lower than expected at a 1.4% annualized rate, although most of the drag came from government spending due to the shutdown. Additionally, core PCE numbers for December came in higher than estimates, with core PCE rising 0.4% month-over-month, or 3% year-over-year (the highest since March 2024). In addition to any more tariff news from Trump this week, investors will be heavily analyzing NVDA’s earnings this week as they report on Wednesday. We’ll also get some earnings reports from some of the major software players including CRM, INTU, ADSK, and SNOW.
US GDP
In the fourth quarter, the US real GDP decelerated sharply to 1.4% annualized from a 4% pace in prior quarter, largely due to a government shutdown that subtracted roughly 1 percentage point from growth. That drag is expected to reverse in 1Q26, lifting growth closer to mid-2% range. Importantly, underlying demand was more stable than headline GDP, final sales to private domestic purchases rose 2.4%, consistent with the steady 2.6% seen over the past year. For 2025, consumer spending has grown a steady 2.2%, outpacing real disposable income, which has pushed the savings rate down to 3.6%. Lower taxes under OBBBA could provide incremental support to both spending and savings going forward. Business investment grew 3.7% annualized in Q4, but the strength was highly concentrated in AI. Computer equipment investment surged roughly 80% quarter-over-quarter or 72% year-over-year, driven by hyperscaler spending on servers, GPUs, and data centers, while intellectual property products rose 7.4% and R&D increased about 9%. However, this AI-driven capex boom coincided with a widening trade deficit, which reached $901.5 billion in 2025. Because many advanced chips and hardware components are imported from Asia, rising tech imports partially offset the domestic investment boost. In Q4, the combination of strong tech capex and net imports which resulted in a 0.8 percentage point drag on GDP, showing that part of the AI growth impulse is leaking overseas.
Supreme Court Deems President Trump’s Global Tariffs Illegal
On Friday, the Supreme Court of the United States struck down President Trump’s tariff regime, finding that he exceeded the office's authority under the International Emergency Economic Powers Act (IEEPA) and that the act does not grant the executive the power to impose broad tariffs. The implications of this ruling are far-reaching - with the immediate result being a reduction in the effective US tariff rate. Taking into account the just announced 15% global tariff, estimates now place the US effective tariff rate at ~13.2%, slightly lower than ~15.3% it was before Friday. The second implication revolves around concerns over how refunds will be handled, as the figure could reach as high as $170 billion. In response to the ruling, the administration is already pivoting to Section 122 of the 1974 Trade Act, which allows it to impose a 15% global tariff; however, this implementation of the law carries a lower tariff rate ceiling than IEEPA and includes a 150-day expiration period. Going forward, the administration still has tools to impose tariffs, though in a more targeted way, such as expanding Section 232 to include electronics and semiconductors, or using Section 301 against countries it considers to be engaging in “unfair trading practices”. Taken together, this implies that effective tariff rates are unlikely to revert to pre-2025 levels, mainly due to the current implementation of Section 232 tariffs on steel, aluminum, copper, and auto parts. Moving ahead, equity markets will likely continue to face policy risk, as the President and his team aim to implement tariffs more surgically, with sectors deemed a national security risk, such as electronics and pharmaceuticals, facing heightened exposure.
Sources:
https://markets.jpmorgan.com/jpmm/research.article_page?action=open&doc=GPS-5213579-0
https://markets.jpmorgan.com/jpmm/research.article_page?action=open&doc=GPS-5213735-0
https://www.bea.gov/news/2026/gdp-advance-estimate-4th-quarter-and-year-2025
https://markets.jpmorgan.com/jpmm/research.article_page?action=open&doc=GPS-5211057-0
https://www.bea.gov/news/2026/gdp-advance-estimate-4th-quarter-and-year-2025
https://globaltradealert.org/reports/S122-US-Tariff-Estimates
