Tariff Uncertainty Resurfaces In A Flood Of Economic Data
Feb 23, 2026
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Lawrence Fuller
The Supreme Court Has Spoken
In a volatile week full of earnings reports and market-moving economic data, the Supreme Court’s decision to strike down President Trump’s global tariffs imposed under the Emergency Powers Act (IEEPA) stole the spot light on Friday. Stocks rallied on the news, leading to a gain of 1.1% for the S&P 500 on the week. In response to the decision, the President announced a new global tariff of 10%, which he then raised to 15%, on all imports under Section 122. This statute can be used for 150 days. At that point, its extension must be approved by Congress, which is highly unlikely. Furthermore, Section 122 only applies when there are balance-of-payment deficits which do not exist. If this is successfully challenged, the administration will undoubtedly lean on other statutes to maintain the current level of import tax revenue. Therefore, uncertainty remains and the situation remains fluid.
According to The Budget Lab, assuming the President’s response to the ruling sticks, the effective tariff rate will still decline from 16% to 13.7%. From the market’s standpoint, that is a positive rate of change that modestly reduces the cost for U.S. companies to import goods, which also may reduce upward price pressures for consumers. At the same time, it will modestly reduce revenue for the federal government, which increases the deficit and could put upward pressure on long-term interest rates. There is also the issue of refunding some $170 billion in tariffs that companies have already paid under the IEEPA, which would be another form of fiscal stimulus this year, but that could be a long and drawn out process.
It is too early to tell how this will all work out, but the bottom line is that in aggregate this does not change a lot in terms of the effective tariff rate or its impact on the economy. I think the market will view it as a modest positive, considering the consensus sees tariffs as taxes on U.S. businesses and consumers which increase inflation and slow the rate of economic growth in the near term.
Mixed Messages From The Economy
Last week’s data painted a more sober picture of the economic expansion than the week before. The rate of economic growth (GDP) in the fourth quarter fell short of expectations at just 1.4%, but the 43-day government shutdown shaved nearly a full percentage point off the number. Still, growth slowed from 2.4% in 2024 to 2.2% in 2025, and there were signs of consumer fatigue that will hopefully be remedied by tax refunds for last year and new tax cuts this year. Real (inflation-adjusted) consumer spending growth slowed to 1.7% in December on a year-over-year basis. That is the slowest rate of growth since November2022. Capital spending rose a healthy 3.7% in the fourth quarter, but when computers and software were excluded business investment slowed for the third quarter in a row. Again, accelerated depreciation of 100% for qualified purchases this year will hopefully increase capex.
Inflation rose more than expected in December with the Fed’s preferred inflation gauge increasing 0.4% for both the headline and core rates. This resulted in the personal consumption expenditure (PCE) price index rising at an annualized rate of 3%, which is higher than the year ago 2.8% and supports the Fed’s decision to hold short-term rates steady. The concern here is that durable goods prices increased 0.5%, which suggests some companies are passing along the cost of tariffs to consumers. The consensus of investors pushed out the expected timing of the next rate cut to July. Inflation remains sticky, but I still expect disinflation to ensue in the coming months once the impact from tariffs starts to roll off the annualized number this summer.
This Rotational Correction Has Further To Go
The stock market is likely to remain volatile in coming weeks, as the rotational correction continues. Investors are dumping expensive growth stocks in favor of more cyclical and value-oriented names, and leverage in cryptocurrencies and precious metals is being unwound. I think this is a healthy pullback that will set the stage for the next broad market advance, but new leadership is emerging, which favors more diversified investment portfolios. The good news is that the economic expansion should continue and corporate profits are growing at a double-digit rate.
According to data aggregator FactSet revenue growth has increased to 9% for the fourth quarter, which is the highest level since the third quarter of 2022. Earnings growth for the quarter is running at 13.2% and profit margins have risen to a historically high 13.3%. Looking forward, the percentage of companies issuing negative guidance for the current quarter at 45% is well below the 5-year average of 58% and the 10-year average of 60%.
This is a powerfully bullish backdrop for the market as we come to the end of earnings season. It is easy to let volatility in the backdrop of discouraging headlines sway sentiment, but the bottom line is that so long as the economic expansion continues the bull market should as well. What is different today from the first three years of this bull market is that investors need to be diversified across sectors, market caps, and styles, as well as maintain exposure to international markets to capture the best risk-adjusted rates of return.
Lawrence Fuller
Founder of Fuller Asset Management & dub Portfolio Creator SeekingAlpha Top Contributor (22k followers)
Background
With three decades of experience in portfolio management, Lawrence commenced his career at Merrill Lynch in 1993 and subsequently held similar roles at various Wall Street firms before establishing Fuller Asset Management in 2005. Since 2013, he has been an esteemed contributing writer for Seeking Akpha, authoring the widely followed Morning Brief newsletter, which boasts a dedicated readership exceeding 22,000 investors.
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