The S&P 500 climbed more than 1% in a holiday-shortened week despite rising worries that the US could strike Iran at any moment. Yes, the stock market has held up surprisingly well, but the real action has been in the oil markets, with crude oil recently up over $70/barrel.
By no means are we minimizing the potential for more conflict in the Middle East, and we hope whatever happens, it is resolved quickly within the scope of any objectives. Of course, just creating a credible threat may be part negotiating tactic. But the bigger question is what will happen to markets if the US does strike Iran. In the near term, some weakness and a spike in oil is likely, not to mention safe havens like gold and bonds finding a bid. But the bigger picture is a different question.
Here’s a list of some of the largest geopolitical events in market history and how stocks did afterward. Yes, near-term volatility and potential weakness are common, but as you go out, the returns are more positive—in fact, the S&P 500 is up a median of more than 5% six months later for the events below.
At the end of the day, some of the poor returns took place during recessions, skewing the data. After John F. Kennedy was tragically assassinated, stocks gained 23% the next 12 months, thanks in part to a strong economy. A year after the war in Iraq started in 2003, stocks were up nearly 30%, as the economy recovered from the tech bubble. More recently, after Hamas attacked Isreal on October 7, 2023, global stocks soared for a year, led by the Israeli stock market.
Earnings Are Justifying the Bull Market
Geopolitical concerns, Washington drama, low consumer confidence, worries over the labor market, and more are all at the top of investors’ minds. Yet, we look up and stock markets across the globe are at or near all-time or 52-week highs. How can this be? We’d say it’s because earnings are justifying this bull market.
We are wrapping up a very strong fourth quarter of earnings for S&P 500 companies, with nearly 75% beating expectations, according to FactSet. In fact, earnings are up 13.2% year over year in the fourth quarter, compared with barely over 8% at the start of the year.
Profit margins have soared as well, up to a record 13.2%, the highest profit margin since FactSet started keeping track of this metric.
Lastly, let’s talk about the top line: revenue. Revenue growth is clocking in at 9.0%, the best number since Q2 in 2022!
Earnings drive long-term stock gains, and record corporate profits and margins can make up for a lot of negative stories out there.
IEEPA Tariffs Have Been Struck Down. What’s Next?
The Supreme Court on Friday struck down the use of IEEPA (the International Emergency Economic Powers Act) as a valid legal basis for many Trump administration tariffs in a 6-3 decision written by Chief Justice John Roberts, with Justices Thomas, Alito, and Kavanaugh dissenting. It’s a complicated 170-page decision with concurrences, partial concurrences, and multiple written concurring views, mostly relating to the constitutional basis for the decision. While the majority reached consensus, this was a messy decision. Here’s an overview of all the different lines of agreement and disagreement from the decision itself.
ROBERTS, C. J., announced the judgment of the Court and delivered the opinion of the Court with respect to Parts I, II–A–1, and II–B, in which SOTOMAYOR, KAGAN, GORSUCH, BARRETT, and JACKSON, JJ., joined, and an opinion with respect to Parts II–A–2 and III, in which GORSUCH and BARRETT, JJ., joined. GORSUCH, J., and BARRETT, J., filed concurring opinions. KAGAN, J., filed an opinion concurring in part and concurring in the judgment, in which SOTOMAYOR and JACKSON, JJ., joined. JACKSON, J., filed an opinion concurring in part and concurring in the judgment. THOMAS, J., filed a dissenting opinion. KAVANAUGH, J., filed a dissenting opinion, in which THOMAS and ALITO, JJ., joined
If you’re keeping score, every justice wrote part of the decision or commented on it except Justices Alito and Sotomayor. That’s a lot of different views, which likely points to how difficult it was to find a consensus view the majority could sign off on. Needless to say, the legal points are complicated. But the main takeaway is crystal clear: “Held: IEEPA does not authorize the president to impose tariffs.” At the same time, this does not mean presidents don’t have any tariff powers at all—they do, but will need Congress to weigh in as part of the process. The court noted:
The Framers gave Congress alone the power to impose tariffs during peacetime. … And the foreign affairs implications of tariffs do not make it any more likely that Congress would relinquish its tariff power through vague language, or without careful limits.
So even though the tariffs may have foreign policy implications, for example via the trade deals the administration has made around the world, Congress still needs to weigh in. We wouldn’t hold our breath on that, given the razor-thin 218-214 majority that Republicans now hold in the House of Representatives.
What Is IEEPA?
IEEPA, passed in 1977, allows the president to “regulate international commerce” after declaring a national emergency. It was under IEEPA authority that the president imposed the following tariffs:
- China, Mexico, Canada tariffs in response to fentanyl trafficking.
- Fentanyl tariffs on China were recently reduced from 20% to 10%.
- Liberation Day (April 2nd) “reciprocal” tariffs imposed in response to the belief that a trade deficit with another country meant that they’re ripping us off (a claim with little economic merit in our view).
The IEEPA tariffs account for about 7 percentage points of the 11 percentage-point increase in the effective tariff rate that is currently in place. That level was already the best-case scenario even prior to Liberation Day last year, and now with the removal of IEEPA, the effective tariff rate would collapse to around 6%, at least short term. As we wrote in our 2026 Outlook, that will be a positive tailwind for US importers going forward.
What Happens Now that Tariffs Are Struck Down?
The administration does have other tools to impose similar tariffs now that using IEEPA as a justification has been struck down, but they are all limited in the amount of time they can stay in place, or capped at a certain level, or require a congressional research study prior to approval. Here’s an overview:
- Section 122: Authorizes tariffs of up to 15% for up to 150 days and requires Congressional approval after that. But it doesn’t require any formal investigation process, so the administration has already signaled it likely will be used temporarily while it works on other tools.
- Section 301: Allows tariffs in response to unfair trade practices. But this requires investigations of trading partners before implementation, which will take several months. But there’s no limit on the level of tariffs.
- Section 232: Allows tariffs based on national security and also requires investigations. The administration has already used this to impose tariffs on steel, aluminum, copper, autos, and furniture.
- Section 338: Allows the president to impose up to 50% tariffs on imports from countries that “discriminate” against the US. This has never been used before, and is similar to 301 tariffs above, except it puts a limit on the level of tariffs. But there’s no investigation required.
The long and short of this is that even though the IEEPA tariffs are struck down, the administration still has several other tools to reimpose the same tariffs, but several will take time. That leaves the future messy with a lot of uncertainty for businesses. On the upside, there is an immediate reprieve from current tariffs, which will act as a kind of tax cut for importers, at least temporarily. The downside: While most tariffs imposed under these other statutes will be slower moving, they are more likely to be sticky. An added complexity will be uncertainty around the deals already made by the Trump administration around IEEPA tariffs.
Will Refunds Go Out Now that IEEPA Tariffs Are Struck Down?
Short answer: They should, but it’ll likely take some time for the refunds to start flowing out, and the onus will be on importers to seek refunds. Note that while the decision says the administration does not have the authority to collect these taxes, it does not directly address refunds. It makes sense that if the tariffs were unlawful, they would need to be refunded, but businesses will have to make the legal case, and it could actually take some time to sort this out legally as the question works its way through the system, which means the timing of refunds is highly uncertain even if they end up being required.
As of now, Treasury has collected an estimated $175 billion under IEEPA that may be at risk for being refunded. While tariff refunds will be a blow to the US treasury, they would be a boost for companies and the economy. Think of the tariff refunds as a tax refund for companies (on top of the temporary tax cut from likely lower tariffs).
Will Consumers See a Benefit from Lower Prices?
This is unlikely. Prices did go up as a result of the tariffs. The Personal Consumption Expenditures Price Index (PCE) for durable goods rose 2.1% in 2025—that’s a big reversal from 2024, when prices declined at a 1.3% pace. From 1996-2020, durable goods prices fell at a pace of 1.9% per year, as globalization helped make goods cheaper. Upending the global trade regime that existed for two and a half decades was bound to send prices higher.
Still, goods inflation did not go as high as many expected for three reasons:
- The effective tariff rate wasn’t as high as expected amid numerous exceptions and carve-outs for various goods.
- US importers shifted goods away from high-tariffed countries (example: moving from China to places like Mexico and Vietnam).
- US importers/companies ate up a large part of the cost.
The first two reasons are also why the trade deficit didn’t really improve in 2025 despite the higher tariffs, with the trade deficit in goods rising from $1.22 trillion in 2024 to $1.24 trillion in 2025. The third point is important because it gets to tariff pass-through from importers to consumers, and the potential reversal of these. A new study from researchers at the Federal Reserve shows that foreign exporters did not drop prices significantly to cover higher import duties, and instead US importers bore 80-90% of the cost of tariffs. At the same time, US companies haven’t quite passed through all of these costs to consumers, which is why inflation wasn’t even higher. However, that also means any refunds are not going to go back to consumers by way of lower prices. Rather, companies will pocket the refunds and bolster their margins.
Takeaway
This is a major legal setback for the Trump administration on a central pillar of its economic plan, but while they’ve lost an important battle, they have not lost the war. In the near term, we believe the decision may act as economic stimulus. In fact, the administration’s intentions may play out more favorably under the new framework. We’ve long held that both parties are most prone to policy mistakes when checks and balances on authority are removed. The main negative post-decision is renewed uncertainty on what future policy may be. Worst case, the level of tariffs will eventually be something like where they were before the decision, but it would probably take some time to get there. In the interim, we think the decision is good for businesses and any implied economic stimulus or boost to margins would be supportive of stocks.
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