Markets head into the final week of February digesting a major Supreme Court ruling on tariffs, softer GDP data, and growing questions around the timing of returns on trillion-dollar AI investments.
The headline index strength masks deeper crosscurrents: policy shifts, inflation uncertainty, and a broad repricing of AI-related expectations.
📈 The Market Backdrop
Despite a volatile news cycle, equities finished strong:
- ES logged a solid green week, holding its uptrend despite recent pullbacks to support.
- NQ broke last week’s lows mid-week but reclaimed ground into the close.
- RTY closed green, though momentum was less aggressive relative to its full weekly range.
- Gold (GC) continues trending toward all-time highs despite minor pullbacks.
Sector leadership flipped decisively risk-on:
- Leading: Basic Materials, Industrials, Energy
- Lagging: Consumer Defensive (–2.11%)
The drop in defensives is notable. Investors rotated into cyclicals following the Supreme Court’s tariff ruling — a signal that policy clarity may be reducing one layer of uncertainty.
🏛️ The Tariff Takedown
In a 6–3 decision, the Supreme Court of the United States struck down the majority of tariffs imposed under emergency powers.
President Donald Trump had used the 1977 International Emergency Economic Powers Act (IEEPA) to justify broad global tariffs. The Court ruled that tariff authority belongs to Congress — not the executive branch.
What Was Reversed
- “Reciprocal” tariffs (some as high as 125%)
- Broad global tariffs tied to the fentanyl emergency declaration
- Most IEEPA-based China tariffs
What Survives
- Section 232 (national security) tariffs on steel and aluminum
- Section 301 tariffs targeting Chinese trade practices
Yale Budget Lab estimates effective tariff rates on Chinese imports drop nearly two-thirds — but not to zero.
Trump also signed a narrower 10% global tariff under the Trade Act of 1974, capped at 150 days.
The Refund Problem
The government collected roughly $129B under tariffs now deemed unlawful. Retailers and import-heavy companies — from Costco to Crocs — are seeking clarity on potential refunds.
The Court declined to rule on repayment mechanics, leaving what one justice described as “a mess” to resolve.
Retail names to watch:
WMT, AMZN, COST, TGT, HD, NKE, TJX
Even partial tariff relief materially improves margin outlooks for large importers.
📉 Growth Slowed — But Not Collapsing
Q4 GDP printed at 1.4%, well below the 2.8% forecast and sharply lower than Q3’s 4.4%.
However, the BEA estimates the 2025 government shutdown shaved roughly one full percentage point from the reading. Adjusted for that distortion, private sector growth tracked closer to 2.4% — far from recessionary.
The number looked worse than the economy actually was.
🔥 Inflation Reaccelerates
Core PCE surprised to the upside in December, both monthly and year-over-year. The YoY reading hit its highest level since April 2024.
That complicates near-term rate-cut expectations.
Markets now face a tension:
- Growth is slowing modestly.
- Inflation is not easing fast enough.
That combination limits policy flexibility.
🤖 AI Is Eating Its Own
AI repricing remains a dominant theme.
Nvidia’s expansion into CPU territory — including a large multiyear deal with Meta Platforms — pushes it into direct competition with Intel and AMD.
But the broader issue isn’t hardware dominance.
Anthropic’s CEO warned that returns on trillion-dollar AI investments may take five years to materialize.
Meanwhile:
- Adobe (ADBE)
- Salesforce (CRM)
- ServiceNow (NOW)
- Intuit (INTU)
- Palantir (PLTR)
have all fallen sharply from recent highs.
The concern is structural:
- Capex is crowding out buybacks.
- Margins may compress before monetization scales.
- AI tools may cannibalize existing software revenue streams.
The narrative has shifted from “growth at any price” to “show me the returns.”
This Week’s Key Events
This is a Fed-heavy week with inflation follow-through.
Monday
- Fed Governor Christopher Waller speaks
- Factory Orders
Tuesday
- Case-Shiller Home Prices
- Consumer Confidence (~87.5 expected vs 84.5 prior)
- Multiple Fed speakers (Goolsbee, Bostic, Waller, Cook)
Wednesday
- Fed speakers continue
Thursday
- Initial Jobless Claims (~215K expected)
Friday — Inflation Watch
- PPI (0.3% expected)
- Core PPI (0.4%)
- Chicago PMI
- Construction Spending
After last week’s Core PCE surprise, Friday’s PPI becomes important confirmation — or contradiction.
Bottom Line
→ Supreme Court ruling removes a major tariff overhang
→ GDP slowed, but underlying growth remains intact
→ Inflation remains sticky
→ AI repricing continues as ROI timelines are questioned
→ PPI and Fed commentary headline the week ahead
The macro picture isn’t collapsing — but it’s more fragile than headline indices suggest.
Stay selective. Watch margins. Watch breadth. And let the data lead.