A US trade court decision that put at least a temporary pause on many of President Trump’s wide-ranging tariffs isn’t cooling Wall Street’s fears over policy uncertainty.
“It is not clear that this is a catalyst for a sustained new risk-on [trade],” Barclays global chairman of research Ajay Rajadhyaksha wrote in a note to clients while pointing out that lower tariffs would mean less revenue back to the US government. That could cause Trump’s new tax bill to push the US deficit higher if it went into effect, exacerbating the recent rise in bond yields and potentially weighing on the equity market.
The decision from the US Court of International Trade invalidates Trump’s “Liberation Day” tariffs of 10% on nearly the entire world and wipes out the threat of higher tariffs on countries that fail to reach a deal during his 90-day pause on the “reciprocal” tariffs. Stock futures soared overnight on the news, with futures tied to the major indexes rising nearly 2%.
But the administration has already appealed the decision. And strategists like Rajadhyaksha have pointed out that this could merely delay Trump’s tariff rollout, not eliminate it.
“Investors were hoping that tariff negotiations would largely be ironed out in the next couple of months, leaving the Administration free to focus far more on growth-positive policy including deregulation,” Rajadhyaksha wrote. “At least optically, that entire process is now pushed back a few months.”
By Thursday morning, the stock market rally had already subsided. The S&P 500 (^GSPC) was up just 0.5%, with gains largely carried by Nvidia’s (NVDA) 5% rally following its first quarter earnings release.
Read more: What Trump’s tariffs mean for the economy and your wallet
Wall Street economists and strategists have been concerned not just about the tariffs themselves but also about how policy uncertainty can stunt business investment. The recent court decision hasn’t solved the market’s tariff uncertainty. It just added another piece to the puzzle.
“We’re trading a decline in the effective tariff rate (good) for a prolonged bout of policy uncertainty (bad),” Renaissance Macro head of economics Neil Dutta wrote in a note on Thursday morning. “This will weigh on business investment and hiring.”
He added, “At the margin, this puts some pressure back on the Fed. I’d argue this puts less emphasis on the near-term inflation data and more weight on employment.”
In a note to clients on Wednesday night, Goldman Sachs chief US economist Alec Phillips defined the court ruling as a “setback” for Trump’s tariff plans but also said it “might not change the final outcome for most major US trading partners.”
