An appeals court upholds tariff illegality… the batch of new questions it raises… but the “Trump Shock” is still in play… higher prices are coming… the “haves” versus “have nots” divide widens
Over the long Labor Day weekend, huge news dropped…
A federal appeals court ruled that most of President Donald Trump’s tariffs are illegal. That’s a potential game-changer for trade policy, corporate earnings/stocks, and global market sentiment.
As a quick refresher, in May, the U.S. Court of International Trade found that Trump overstepped his authority under the International Emergency Economic Powers Act (IEEPA) when he imposed broad tariffs on China, Mexico, and Canada. Last Friday, the U.S. Court of Appeals for the Federal Circuit upheld the ruling.
For now, the tariffs will remain in place. The appeals court gave the Trump administration until October 14 to appeal to the Supreme Court. So, companies and consumers will still pay the tariffs, even though the courts say they’re not legally grounded.
If the Supreme Court doesn’t hear the case (highly unlikely), Trump’s tariffs would be struck down shortly after October 14, and we’d find ourselves with the huge mess of how to unwind/refund tens – possibly hundreds – of billions of dollars in collected tariff revenue.
Assuming the Supreme Court hears the case, we’ll likely get oral arguments in early 2026 and a decision by late spring or early summer.
This introduces a whole new layer of uncertainty for investors
Consider just a handful of the new questions:
- If the Supreme Court rules that tariffs are illegal, is that the end of the story? Or does President Trump reimpose them using narrower statutes like Section 232 (national security) or Section 301 (unfair trade practices)?
- If refunds are ordered, how quickly will they be processed? Will payments include interest to compensate companies for the opportunity cost of funds withheld?
- How would massive tariff refunds – deflationary – complicate the Fed’s already murky inflation outlook?
- Would a legal defeat embolden foreign governments to retaliate with their own trade measures? Or would it lower tensions and create openings for negotiation?
- Will the Fed factor potential tariff refunds into rate policy decisions later this year, or will it be a strict “wait and see” approach until June 2026?
- What becomes of existing trade frameworks like we have with the United Kingdom? Do they dissolve or remain intact?
- For companies that agreed to shift operations into the U.S. to avoid Trump’s tariffs – will they unwind those expensive moves now that they don’t face punitive tariffs for keeping operations abroad?
- How do investors price this in? Is it a binary bet on the Supreme Court’s decision, or more of a spectrum where different rulings imply different sector winners and losers?
Plus, there are macro questions around the impact of tariff refunds on stock valuations, the dollar, and bond yields, to name a few. The ripple effects could be felt everywhere.
Bottom line: One word captures it all – uncertainty.
The courts have handed us a whole new set of market-related questions – and they won’t be answered anytime soon
The process could stretch well into mid-2026, meaning we’ll be living with tariffs – and uncertainty – for many months.
And far from softening today’s tariff climate, the potential for a negative Supreme Court ruling may actually reinforce it…
And that means September 30 becomes even more important.
Legendary investor Louis Navellier has been sounding the alarm on this date, and the new courtroom drama only raises the stakes.
As you know, President Trump is pressing forward with a pro-growth agenda of tax cuts, onshoring, energy expansion – and yes, tariffs.
As Louis puts it:
Trump is pulling out all the stops to produce an economic boom, along with a stock market boom, like the world has never seen.
As soon as September 30, I believe it will all come to a head and create what I call the “Trump Shock.”
That’s because roughly $7 trillion is sitting on the sidelines in cash, waiting for a signal that it’s safe to move back into stocks.
With tariffs now at risk being ruled illegal next year, Trump has every incentive to move even faster. That urgency could make September 30 even more of a starting gun on the wall of cash flooding back into the market.
Louis dives into greater detail on this “Trump Shock,” in this free special presentation. He zeroes in on five “buy”-rated stocks he expects to lead the charge in the coming months.
Here’s Louis:
Big institutional money won’t spread across the indexes. It will pour into a handful of select stocks with the earnings power to harness artificial intelligence and other transformational technologies.
Think Magnificent Seven – but on steroids.
For investors, the lesson is clear: Those who position ahead of the Trump Shock stand to gain the most.
Turning to something that’s not so “uncertain”– higher consumer prices are on the way
So far, Corporate America has largely handled the tariff burden by accepting squeezed margins or front-loading orders to lock in costs. The net effect is that the U.S. consumer’s wallet has mostly been spared.
That’s likely to change.
Here’s The Wall Street Journal from last Thursday:
U.S. companies have an unwelcome message for inflation-weary consumers: Prices are going up.
Companies including Hormel Foods, J.M. Smucker and Ace Hardware said this week they would raise prices for reasons ranging from higher meat costs to tariffs.
Large retailers like Walmart, Target and Best Buy said some tariff-related price increases are already in place. More are on the way.
Zeroing in on Walmart Inc. (WMT), because it’s the biggest retailer in the U.S. by far, don’t forget what CEO Doug McMillon said on the company’s earnings call two weeks ago:
As we replenish inventory at post-tariff price levels, we’ve continued to see our costs increase each week, which we expect will continue into the third and fourth quarters.
Higher prices are coming at a time when our consumer base is increasingly split
As we’ve long said in the Digest, there’s a growing divide today between the “haves” and “have nots” – both in the market (AI/tech stocks versus everything else) and in our society (higher income earners with assets versus everyone else). We’re getting more data on this.
Last Friday, the latest University of Michigan survey showed consumer sentiment slipping again in August. It dropped 5.7% from the prior month and 14.3% from a year ago.
But when we dig deeper, we see the wealth-divide in greater relief.
Here’s the WSJ from Sunday:
The middle class — generally considered to include households making roughly $53,000 to $161,000 a year — is playing an outsize role in that waning [consumer sentiment] optimism…
Evidence of a squeezed middle class is mounting. Several CEOs across the dining, retail, fashion and airline industries have said their middle-class customers are increasingly strapped, even as high earners keep on buying…
The gap in confidence between high- and low-earners is now the widest it has been in the seven years of tracking the data.
More U.S. consumers now say they’re dialing down spending than when inflation spiked in 2022. Over 70% of people surveyed from May to July plan to tighten their budgets for items with large price increases in the year ahead, according to the University of Michigan’s economic sentiment survey.
High earners were much more likely to keep spending as usual, Joanne Hsu, the Michigan survey’s director, said in her analysis.
Given that high earners are still spending, certain consumer categories are doing well – luxury goods, premium travel, and high-end experiences remain resilient. But while the “haves” are spending enough to power certain corners of the economy, they can’t carry everything.
Middle- and lower-income households account for the bulk of aggregate demand, so their pullback raises bigger questions about the durability of consumer-driven growth.
But – coming full circle – if tariffs are ruled illegal, will that spell relief for the flagging U.S. consumer?
Not really.
Remember, consumers have mostly been spared so far. As we noted earlier, U.S. companies have, in large part, borne the brunt of tariffs up to now.
So, any relief from court rulings would go to Corporate America – and the investors of those companies.
Where does all this leave us?
Well, we’re looking at middle- and lower-income households tightening their belts, while high earners continue spending in targeted sectors. Combine that with roughly $7 trillion on the sidelines and Louis’ potential “Trump Shock” catalyst on September 30, and you have a setup for highly targeted bullish moves – while the average stock faces seasonal headwinds.
From Louis:
Here’s the key: This will not be a “rising tide lifts all boats” scenario.
Instead, it will be the narrowest, most lucrative bull market in history.
We’ll keep you updated on all these stories – especially how the tariff courtroom drama progresses.
Have a good evening,
Jeff Remsburg
