What's at stake for markets as the Supreme Court gets ready to hear Trump tariff arguments

By Joseph Adinolfi and Victor Reklaitis

Signs that the court is leaning against the tariffs could weigh on prices of stocks and bonds, as well as the U.S. dollar, strategists say

Investors will be keeping a close watch Wednesday as the Supreme Court hears oral arguments about the legality of President Trump's tariffs.

Investors will be keeping a close watch Wednesday as the Supreme Court hears oral arguments in a case that could determine whether most of President Donald Trump's wide-ranging tariffs will stand or not.

While the court's decision isn't expected for at least a few weeks, any signs that the justices are leaning toward declaring Trump's tariffs illegal could instigate a revival of the "sell America" trade that sent stocks, bonds and the U.S. dollar reeling in tandem back in April, Wall Street strategists told MarketWatch. But some strategists said stocks could advance while other American assets fall.

"If the oral arguments generate expectations that the tariffs will simply be ruled illegal, we expect U.S. yields to go up and the [dollar] to fall, perhaps significantly," said Steve Englander, head of global G-10 currency research and North America macro strategy at Standard Chartered, in a report shared with MarketWatch.

Crit Thomas, a global market strategist at Touchstone Investments, told MarketWatch that he was surprised at how calm the equity market has been given the risk that the tariffs could be struck down. He said stocks could see a pullback - perhaps a significant one - if the Supreme Court appears to be leaning in that direction.

Manish Singh, chief investment officer at Crossbridge Capital Group, expanded on Thomas's point. While Trump's original round of tariffs announced in April was anathema to investors, the subsequent reductions and deals struck with foreign governments have helped to ease their concerns. The fact that tariffs have started bringing in revenue for the government without stoking a big acceleration in inflation has helped make investors more comfortable with them, he noted. To toss them out now would usher in more uncertainty, which could be bad for business and the market.

"Tariffs have been reduced from a high level to a manageable level; nobody's complaining about them now, and the U.S. is collecting money. To disrupt this whole thing and restart the whole process, that would probably cause some volatility in the market," Singh told MarketWatch during an interview.

Concerns that an adverse decision by the court could impact markets and the economy have also been voiced by Trump himself. The president argued during an interview on "60 Minutes" that his tariffs have helped push stocks to record highs, and that the U.S. economy "will go to hell" if they are struck down.

While investors appear to have grown accustomed to the status quo, popular betting markets like Polymarket show some are betting that the Supreme Court could usher in a big change with its decision. Expectations that the court will uphold the tariffs have started to fade over the past couple of months, and chances that the tariffs will be thrown out have risen to about 60% as of Tuesday, data showed.

While Polymarket is showing only around a 40% chance that the court will rule in Trump's favor, Stifel's chief Washington policy strategist, Brian Gardner, said he thinks a higher percentage of investors believe Trump will win this case. He reckons stocks will sell off Wednesday if justices send signals that they're actually not leaning in Trump's favor.

"If we are right and the markets have priced in a Trump win, headlines which suggest that a majority of the court is leaning towards the plaintiffs could be a positive for equities but a negative for fixed income," Gardner said in a note. "We think investors would view a possible win by the plaintiffs as pro-growth. At the same time, the potential loss of tariff-generated revenue could lead to higher-than-anticipated federal deficits, which might pressure bonds."

The federal government scored $195 billion in tariff revenue in its 2025 fiscal year that ended Sept. 30, an increase of more than 250% above what it collected in the prior fiscal year, noted one watchdog group, the Committee for a Responsible Federal Budget, in a blog post last week. But that's not ending the government's red ink.

"Even after accounting for these tariffs and roughly $200 billion of one-time student-loan savings, the budget deficit for FY 2025 still totaled $1.8 trillion (roughly 6% of GDP). Lawmakers will therefore need to identify substantially more deficit reduction to put debt on a sustainable path, as well as protect or replace any lost tariff revenue should the Supreme Court affirm rulings that many of these tariffs are illegal," the Committee for a Responsible Federal Budget said. The group also has recently noted that the gross national debt has topped $38 trillion.

The Supreme Court is hearing arguments after lower courts found that Trump exceeded his authority in using the International Emergency Economic Powers Act of 1977 to justify his many country-specific tariffs. One of the attorneys opposing the Trump administration, the Liberty Justice Center's Jeffrey M. Schwab, stressed during a briefing last week that no U.S. president has ever used IEEPA to impose tariffs.

"The first argument that we've made in the case is that IEEPA just doesn't authorize tariffs at all, but even if it does, the next argument is that it's not an emergency," said Schwab during the briefing, which was run by an antitariffs group called We Pay the Tariffs. "At least with the 'liberation day tariffs,' the justification was the trade deficit - and a trade deficit we've had for 50 years."

Treasury Secretary Scott Bessent on Tuesday described the tariffs as one of Trump's "signature policies," and said that the court overruling a signature policy would be unusual. Bessent, speaking during an interview with CNBC, said he would attend Wednesday's oral arguments, and that ideally he would be sitting in the front row.

"There are lots of other authorities that can be used, but IEEPA is by far the cleanest, and it gives the U.S. and the president the most negotiating authority," Bessent added, referring to other laws that allow presidents to impose tariffs.

Robert Schroeder contributed.

-Joseph Adinolfi -Victor Reklaitis

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11-04-25 1429ET