Summary
With the Supreme Court set to rule on emergency tariffs, markets are focused on how quickly policy could shift and what that means for equities and rates. This analysis outlines four key scenarios—from tariffs being struck down and immediately replaced to a low-probability outcome where no replacement occurs. Each scenario includes estimated probabilities, expected S&P 500 and small-cap reactions, and rate implications. The base case suggests short-lived relief rallies, while delayed or abandoned replacements could drive stronger upside, especially for small caps.
Market Movers
- 📈 Unemployment Claims: Jan 8, 2026
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📚 Deep Dive 📚
📊 SCOTUS Tariffs Ruling: Market Scenario Analysis & Trade Implications
Source: JPM Trading Desk / Market Intelligence
Note: Probability of outcomes reflects Polymarket pricing as of Jan 2, 2026, supplemented by internal Market Intelligence estimates.
Markets are increasingly focused on the upcoming Supreme Court of the United States (SCOTUS) ruling on emergency tariffs. Below is a structured breakdown of the four key scenarios, associated probabilities, and expected market reactions—particularly for equities and rates.
🟢 Base Case: Tariffs Struck Down and Immediately Replaced (64%)
This is the central scenario, supported by recent comments from Donald Trump and Treasury Secretary Scott Bessent.
Market Logic
This outcome effectively becomes a time value of money issue. Cash flows improve in the near term (Year 0) as tariffs are temporarily removed, but the administration is expected to re-impose similar tariffs via alternative legal mechanisms. Any “windfall” would likely be clawed back later through litigation or policy replacement.
Market Impact
- S&P 500: +0.75% to +1.0% intraday
- Likely faded as replacement tariffs are announced
- Net close: +10–20 bps
- Rates largely unchanged; equity move driven by relief rally
CNBC commentary from Bessent reinforces the administration’s confidence in replicating tariffs even if the court rules against them.
🟠 Tariffs Upheld (26%)
This is the status quo outcome but may still surprise markets given how much downside risk has already been priced in.
Market Logic
Equities have partially adjusted for a potential strike-down. If tariffs are upheld, the bigger reaction may occur in rates, not stocks.
Market Impact
- S&P 500: –30 to –50 bps same day
- Yield curve likely sees more pronounced movement than equities
- Limited follow-through unless paired with new policy guidance
🟢🟢 Tariffs Struck Down, Replacement Delayed Until After Midterms (9%)
This is the most bullish realistic outcome.
Market Logic
- Eases tariff-driven inflation pressures
- Provides temporary relief to small and mid-sized businesses
- Improves Fed flexibility
- Introduces uncertainty, but markets reward the near-term growth impulse
Market Impact
- S&P 500: +1.25% to +1.5%
- Russell 2000 (RTY): significant outperformance
- Cyclicals and domestically focused stocks benefit most
🟢🟢🟢 Tariffs Struck Down With No Replacement (1%)
This is a tail-risk scenario but represents the most equity-bullish outcome.
Market Logic
- Strong disinflation impulse
- Forces a repricing of Fed policy expectations
- According to rates desks (incl. Mark Whitworth), this could push Trump toward a more dovish Fed nominee, steepening the yield curve
Market Impact
- S&P 500: +1.5% to +2.0%
- Russell 2000: strong outperformance
- Yield curve steepens aggressively as the back-end sells off on higher growth and inflation expectations
- Equity upside may be capped by rate volatility
🔍 Key Takeaways for Traders & Investors
- Relief rallies are likely to be faded unless tariffs are removed without immediate replacement
- Small caps outperform in all strike-down scenarios
- Rates volatility may ultimately matter more than equity direction
- Base case supports buying dips, not chasing headlines
This is a headline-driven event with short-term volatility but limited long-term regime change unless replacement tariffs are materially delayed or abandoned.