Market overview
Tariff tantrum—we’ve been here before, or have we? There was Liberation Day in April 2025 when US President Trump unleashed tariffs on pretty much the whole world causing stock markets to tumble and then recover. Then there was the threat of a tit-for-tat trade war with China in autumn 2025 that sent stock markets into a tailspin before rebounding once more. And now in February 2026, the Supreme Court rules Trump’s Liberation Day tariffs based on the International Emergency Economic Powers Act to be illegal—and this despite the court being packed with conservative justices two of whom were appointed by none other than Trump himself! Enough to trigger another tariff tantrum?
Yes, but it was not global stock markets that reacted negatively this time—the MSCI All Country World Index (+0.55%) and the main US stock index (+0.60%) both finished up on the day. Instead, it was Trump’s turn to have a tariff tantrum calling the ruling a ‘disgrace’. It's easy to see why the Supreme Court has incurred the wrath of Trump. After all, tariffs are the centrepiece of the president’s economic agenda to reshore manufacturing jobs to the US, reverse the country’s stubbornly high trade deficit with the rest of the world and potentially use some of the income raised to give US families a US$2,000 tariff dividend.
And then there’s the threat of refunds. The Supreme Court did not cover the subject of refunds but already the US Chamber of Commerce and the National Retail Federation have called for companies hit by the illegal tariffs to be reimbursed. It’s been estimated companies could be owed more than US$130bn as a result of duties paid since the tariffs came into force. Not an immaterial sum. Certainly, one, especially when combined with future lost tariff income, that would leave a hole in the government’s finances. A hole that would need to be filled by something else—more borrowing?
No surprise then that Trump did not waste any time hitting back with a new 10% levy on imports over and above existing duties—the rate was subsequently raised to 15%. The new tariff falls under section 122 of the Trade Act of 1974. However, this only allows the president to set import restrictions for up to 150 days without congressional approval. Trouble is, there appears to be nothing in Section 122 that prevents the president from bringing them back by simply declaring a new emergency when the tariffs expire. Just as the Supreme Court ruling was never going to be the last word on the matter, chances are we haven’t seen the last of the tariff tantrums.
Weekly market moves and economic news:
The MSCI All Country World Index (MSCI ACWI) ended the week up 1.0%, bringing the year-to-date (YTD) gain to 3.9%.
United States:
The Supreme Court’s tariff ruling showed there is still life in the checks and balances put in place by the Founding Fathers. Perhaps this was one reason why the main US stock market index finished the week with a 1.1% gain (+1.1% YTD). In a reversal of the recent trend, growth stocks (+1.5%) trumped both value (+0.7%) and small caps (+0.7%) although there is still a way to go before growth (-4.1% YTD) closes the YTD gap with value (+7.1% YTD) and small caps (+7.5% YTD).
US Treasury yields edged higher. The yield on the 10-year note ticked up four basis points to 4.09% (down eight basis points YTD). The yield on the 2-year Treasury fared slightly worse, rising seven basis points to 3.48% (flat YTD), a nod perhaps to the tone of the minutes of the Federal Reserve’s (Fed) latest rate-setting meeting. Comments such as “downside risks to employment had moderated” and “the risk of more persistent inflation remained” give the impression the meeting was more on the hawkish side.
And with impeccable timing, the Bureau of Economic Analysis reported that December’s core personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, came in 0.4% higher month over month (MoM) and 3.0% year over year (YoY), compared to 0.2% and 2.8% in November. At 2.9% YoY, the headline number was the highest it’s been since March 2024. All at a time when US economic growth was slowing down sharply—the annual rate of growth in Q4 2025 dropped to 1.4% from 4.4% in Q3 due to lower government spending and exports, and a slowdown in consumer spending.
United Kingdom:
London’s stock markets continued their impressive start to the year. Large caps led the way with a 2.6% gain (+7.9% YTD). Mid-caps were not too far behind with a weekly gain of 1.4% (+6.0% YTD). Gilts had a good week too thanks to supportive economic data including a fall in January’s annual inflation rate to 3.0% from December’s 3.4%; and a record £30.4bn monthly budget surplus for January thanks to a step-up in tax receipts. The yield on 10-year notes closed seven basis points lower at 4.35% (down 12 basis points YTD). Sterling did not fare as well with the pound ending the week at US$1.35 compared to US$1.37 previously.
Europe ex UK:
Another positive week for European stocks—the MSCI Europe ex-UK Index closed up 2.2% (+6.2% YTD). Drivers included an uptick in earnings expectations, as well as a strong early eurozone PMI (Purchasing Managers’ Index) reading for February that showed new orders rising at their fastest rate in almost four years. At the national level, Germany’s main stock market added +1.4% (+3.1% YTD); France’s +2.5% (+4.5% YTD); and Italy’s +2.3% (+3.7% YTD). Switzerland tacked on 1.9% (+4.5% YTD). As with sterling, the euro finished the week lower against the US dollar to settle at US$1.18 compared to US$1.19. Finally, the yield on the 10-year German bund was largely unchanged, finishing down just one basis point at 2.74% (down 12 basis points YTD).
