U.S. Stocks Rebound After Supreme Court Strikes Down Trump Tariffs

NEW YORK — U.S. stocks rallied after the Supreme Court ruled that President Donald Trump's reciprocal tariffs imposed on countries worldwide were unlawful, eliminating uncertainty over the tariff ruling and raising hopes that trade conflict burdens on businesses could ease.

On February 20 (local time), the Dow Jones Industrial Average closed at 49,625.97, up 230.81 points (0.47%) from the previous trading day. The S&P 500 rose 47.62 points (0.69%) to 6,909.51, while the Nasdaq Composite jumped 203.34 points (0.90%) to close at 22,886.07.

Among major technology stocks by market capitalization, Nvidia gained 1.02%, Apple rose 1.54%, Amazon climbed 2.56%, Alphabet (Google's parent company) surged 4.01%, Meta (Facebook's parent company) added 1.69%, and Tesla edged up 0.03%. Microsoft fell 0.31%, Broadcom declined 0.40%, and Walmart dropped 1.51%.

Markets initially opened lower after data showed U.S. fourth-quarter GDP growth (annualized quarter-over-quarter) came in at just 1.4%, well below the expert forecast of 2.5%, affected by the longest federal government shutdown in history. The December Personal Consumption Expenditures (PCE) price index rising 2.9% year-over-year, above market expectations, also dampened hopes for a March rate cut. According to the Commerce Department, the December PCE price index rose 2.9% year-over-year and 0.4% month-over-month, exceeding Dow Jones forecasts of 2.8% and 0.3% respectively. Core PCE, excluding energy and food, rose 3.0% year-over-year and 0.4% month-over-month. The PCE price index is the inflation gauge the Federal Reserve weighs most heavily when setting interest rates.

Markets turned positive around 10 a.m. when the Supreme Court confirmed its ruling against the Trump administration on reciprocal tariffs. The court ruled that the International Emergency Economic Powers Act (IEEPA) does not grant the president authority to impose tariffs, handing the administration a defeat. The case began when Trump designated chronic large trade deficits as a serious threat to national security and the economy on April 2 last year, imposing reciprocal tariffs under IEEPA. Five small businesses harmed by tariffs, including wine importers, sued the administration in the U.S. Court of International Trade on April 14, and 12 states including Oregon joined the legal battle on April 23. IEEPA, enacted in 1977, had primarily been used for sanctions and asset freezes against adversary nations. Trump was the first leader to use IEEPA to impose tariffs citing trade balance improvement, manufacturing competitiveness, and drug smuggling prevention.

Trial and appellate courts in May and August last year ruled that "exclusive authority to impose tariffs lies with Congress" and ordered the reciprocal tariffs withdrawn. At the Supreme Court's first oral arguments on November 5, justices across the political spectrum expressed doubts about the tariffs' legality. The Supreme Court ultimately upheld the lower court rulings, concluding Trump's reciprocal tariffs lacked legal basis.

Three hours after the ruling, Trump held an emergency press conference at the White House, announcing he would immediately sign an executive order imposing 10% additional tariffs worldwide under Section 122 of the Trade Act. Trump said the tariffs would likely take effect in three days. "I am very disappointed with this terrible ruling," Trump said. "The good news is that there are stronger tools, methods, laws, and authorities than tariffs under IEEPA." He added: "Other countries that have ripped us off for years are ecstatic and dancing in the streets with joy. But they won't be dancing for long."

Trump cited Section 232 of the Trade Expansion Act and Sections 122, 201, and 301 of the Trade Act, as well as Section 338 of the Tariff Act, as alternative tariff authorities. Section 122, which Trump cited for the 10% tariff, allows the president to temporarily impose tariffs or set import quotas to address balance of payments issues.

February Purchasing Managers' Index (PMI) data was also released. S&P Global's preliminary February manufacturing and services PMI readings came in at 51.2 and 52.3 respectively, both below market expectations of 52.6 and 53.0. Aftershocks continued from private credit firm Blue Owl Capital's announcement that it would suspend quarterly redemptions for its Blue Owl Capital Corp II private fund. Blue Owl fell another 4.80% after dropping 5.93% the previous day.

Oil prices closed slightly lower as news of Trump considering limited strikes on Iran mixed with the tariff ruling defeat. West Texas Intermediate crude for March delivery settled at $66.39 per barrel on the New York Mercantile Exchange, down $0.04 (0.06%). Asked at the White House whether he was considering limited strikes to pressure Iran into nuclear negotiations, Trump replied: "I think I could say that we are looking at that."