Reduction of “Policy Shocks”
The primary driver of the risk-on rally last Friday was the removal of the President’s ability to impose sudden, unilateral tariff hikes under the guise of national emergencies. Since early 2025, the market has lived under the constant threat of “Twitter-style” trade policy where rates could jump 10% to 25% overnight.
By ruling that IEEPA does not grant the executive branch the “extraordinary power to raise revenue,” the Court has effectively dismantled the administration’s primary tool for aggressive trade maneuvers. The ruling “reduces trade policy uncertainty at the margin,” allowing businesses to plan capital expenditures without the fear of an immediate supply-chain “shock.”
The $175 Billion “Refund Rally”
Perhaps the most tangible catalyst for risk assets is the prospect of massive corporate refunds. Since the IEEPA-based tariffs were implemented in February 2025, the U.S. government has collected an estimated $130 billion to $175 billion in duties.
With the Court declaring these collections illegal, a door has opened for importers to claw back these funds. This potential “fiscal injection” is being viewed by some economists as a late-cycle stimulus. For sectors like retail, automotive, and technology, which absorbed much of the initial cost, the promise of significant cash-back on balance sheets has sent stock prices climbing.
Global Relief and Currency Stabilization
Outside the US, the ruling acted as a pressure-release valve for export-heavy economies. Risk assets in Canada, Mexico, and across Asia surged following the news.
- The “Loonie” and the Peso: The Canadian dollar and Mexican peso strengthened as the “fentanyl/border” tariffs were invalidated.
- European Equities: Indices like the FTSE 100 and the DAX hit near-record highs, led by carmakers and luxury goods manufacturers (e.g., Diageo and BMW) that had been heavily penalized by reciprocal duties.
Lower Inflationary Tailwinds
Risk assets thrive in a low-inflation environment because it allows the Federal Reserve more room to cut interest rates. The invalidation of IEEPA tariffs which accounted for approximately 60% of the total tariff revenue collected over the last year, removes a significant “tax” on consumers.
While the administration has already proposed “Plan B” workarounds using Section 122 of the Trade Act of 1974, these alternative paths are legally more narrow and slower to implement, leading markets to believe the “peak tariff” era has passed.