Between the Court and the Fed: the market redefines its roadmap for 2026

Trade policy in limbo as markets price in 2026 rate cuts and Supreme Court strikes down Trump tariff plan. 

In the latest episode of the podcast Mercado Sobre Ruedas, financial markets journalist Julián Yosovitch analyzes the growing uncertainty in the U.S. market stemming from the new tariff introduced by President Donald Trump, as well as the performance of the American economy in a trade environment filled with unknowns. Below is a summary of Yosovitch’s key insights.

Starting with the Supreme Court of the United States, which dealt a major blow to Trump’s trade strategy by striking down much of his tariff framework in a 6–3 ruling that questioned the scope of presidential authority on tariffs.

However, the Court did not rule on whether previously collected amounts under the higher rates should be reimbursed. Trade policy had been one of the cornerstones of Trump’s economic and foreign policy agenda, and according to Yosovitch, an adverse ruling could jeopardize the country’s economic security.

Wall street reaction, mixed data, and Fed uncertainty

Markets welcomed the court’s decision, Yosovitch noted, with the NASDAQ Composite rising nearly 1%, the S&P 500 advancing 0.55%, and the dollar weakening 0.3% on the day. On a weekly basis, the Nasdaq gained 1.3%, the S&P 500 added 1%, and the Dow Jones Industrial Average closed virtually unchanged.

Judicial relief combined with growing expectations of interest rate cuts by the Federal Reserve amid signs of economic slowdown. U.S. GDP grew at an annualized rate of 1.4% in the fourth quarter, well below the previous 4.4%. For the full year, growth reached 2.2%, reflecting a marked slowdown and weaker consumer spending, which accounts for two-thirds of the economy.

Meanwhile, the core PCE inflation index, the Fed’s preferred gauge, according to Yosovitch, stood at 3% year-over-year in December, above expectations. In January, headline inflation came in at 2.4%, while core inflation reached 2.5%, still above the Fed’s 2% target.

The labor market showed mixed signals in January: 130,000 jobs were created, surpassing forecasts, and the unemployment rate fell to 4.3%. However, the medium-term trend points to slower job creation.

Against this backdrop of weaker growth and persistent inflationary pressures, markets are pricing in at least two rate cuts totaling 50 basis points in 2026, with a possible first cut in July and another in October. The benchmark rate currently stands in the 3.50%–3.75% range, while the 10-year U.S. Treasury yield is at 4.07%.

Geopolitical tensions and energy rally

Economic uncertainty has been compounded by geopolitical tensions. U.S. military deployment in the Middle East and pressure on Iran increased volatility and drove up oil prices amid concerns over a potential disruption of transit through the Strait of Hormuz.

WTI crude is trading around $68 per barrel and Brent crude is above $71, boosting the energy sector, which leads annual gains with an increase of nearly 22%.

In summary, Wall Street closed an intense week marked by a historic judicial setback for Trump’s tariff policy, mixed economic signals, and rising international tensions. Although markets welcomed the Court’s ruling, analysts warn that volatility could persist if political tensions escalate further.