Markets take Supreme Court tariff ruling, US-Iran tensions in stride

Supreme Court strikes down Trump tariffs

The tariffs that President Trump enacted last year under the International Emergency Economic Powers Act (IEEPA) were struck down in a 6-3 ruling by the US Supreme Court on Friday.¹ Was that a shock? Not particularly.

We now expect the Office of the US Trade Representative to pivot to a plan B, potentially re-enacting these tariffs using Section 338 of the Tariff Act of 1930, Section 122 of the Trade Act of 1974, Section 232 of the Trade Expansion Act of 1962, or Section 301 of the Trade Act of 1974, or some combination of them.

The Supreme Court’s decision offered no guidance on refunds, including whether refunds are required at all, and we wouldn’t expect any to be issued soon, if ever.

Bond yields rose modestly in response, but a 30-year US Treasury yield of 4.72% suggests that the market remains largely unconcerned about the sustainability of US debt.²

Tensions flare between the US and Iran

Attention then shifted to rising tensions between the US and Iran. Again, this wasn’t a surprise. These risks have been well-signaled for some time.

From an investment perspective, we believe geopolitical events should always be evaluated through the lens of whether they meaningfully alter global growth or the actions of the world’s central banks, particularly the US Federal Reserve (Fed). Iran is a relatively small economy and, while it produces roughly 3%–4% of global oil supply, most of which is exported to China.³

Oil prices have risen on the tensions, but from relatively low levels, and global supply growth continues to outpace demand, with inventories expected to build in 2026.⁴ This is not a 1970s-style oil shock, nor is it likely to alter the Fed’s easy policy stance, in our view. As a result, we don’t expect these developments to derail global stock markets or end the business cycle. History supports this view, as the MSCI All-Country World Index (ACWI) rose 14.28% in the six months following the start of the 12-day Israel-Iran war on June 13, 2025.⁵

New US economic data was weaker than expected

US gross domestic product (GDP) was weaker than expected⁶ and inflation, measured by core Personal Consumption Expenditures (PCE), was somewhat hotter.⁷

Should that be surprising? Perhaps at the headline level for GDP, but the softness was driven primarily by delayed government spending. The US consumer remained healthy, and investment in artificial intelligence (AI) continued at a strong pace. Core PCE strength was driven largely by inflation in services prices rather than goods and reflects reasonably solid underlying demand. We’d expect inflation to moderate over time as productivity gains from AI become more evident. We don’t believe this changes the trajectory for the Fed.

Bottom line: Stock fundamentals remain sound

In short, it may feel as though a decade is happening every week, but we believe the fundamentals for the stock markets remain sound, with relatively strong nominal growth and a US central bank that’s still likely to cut interest rates.