Highlights:

• A federal appeals court ruled most of Trump’s tariffs illegal but allowed them to remain until October 14.

• Investors remain cautious as the case heads toward the U.S. Supreme Court.

• Market reaction highlights deeper concerns over Fed independence, fiscal risks, and stagflation.

Wall Street reopened after the Labor Day break with renewed uncertainty as a federal appeals court ruled that most of President Donald Trump’s tariffs were illegal. The decision, while significant, will not take immediate effect; tariffs remain in place until mid-October, pending a likely appeal to the U.S. Supreme Court. Still, the prospect of a potential reversal in trade policy added to a growing list of investor concerns, rattling markets already grappling with fiscal strains and questions about central bank independence.

Court Ruling Reopens Trade Policy Debate

The appeals court ruling marks the most serious legal challenge yet to Trump’s use of emergency powers to impose sweeping tariffs on U.S. trading partners. For now, the measures remain intact, but their long-term status is highly uncertain. Treasury Secretary Scott Bessent insisted the administration remains confident that the Supreme Court will uphold the tariffs, while also acknowledging contingency plans if it does not.

For markets, the implications are twofold. On one hand, the possibility of tariffs being struck down could ease tensions with trading partners and remove a layer of uncertainty that has dogged global commerce since 2018. On the other, the unpredictability of legal outcomes reinforces the sense of instability, which investors tend to view as a reason for caution.

Market Response Reflects Broader Anxiety

Equity markets reacted swiftly to the ruling, with the S&P 500 and other major indexes sliding around 1% on Tuesday. The move came alongside a sharp uptick in longer-dated U.S. Treasury yields, reflecting investor concerns about fiscal policy and inflationary pressures. While the tariff issue dominated headlines, market sentiment was already fragile due to fears of stagflation and potential challenges to Federal Reserve independence.

Investors appear reluctant to price in definitive outcomes until the Supreme Court weighs in. Jim Baird, chief investment officer at Plante Moran Financial Advisors, noted that most participants are “in a wait-and-watch mode,” underscoring the uncertainty clouding trading strategies.

Tariffs as a Structural Market Factor

Despite the legal setback, analysts caution against assuming tariffs will fade from the U.S. economic landscape. “Tariffs are a core belief of the current administration and we think it makes sense to assume that tariffs, one way or another, are likely to remain a part of the U.S. equity market backdrop for the foreseeable future,” RBC’s Lori Calvasina wrote in a note to clients.

This perspective reflects a broader strategic shift in Washington’s approach to global trade, where tariffs have become a bipartisan tool in negotiations and industrial policy. Even if the current structure is struck down, the likelihood of alternative mechanisms emerging remains high.

Outlook: Awaiting Clarity from the Supreme Court

Looking ahead, all eyes are on the Supreme Court and its timetable for reviewing the case. A decision could reshape trade dynamics with key partners and recalibrate investor expectations heading into the final quarter of the year. In the meantime, markets are likely to remain volatile as traders balance the potential for tariff relief against the risks of prolonged legal and political uncertainty.

For professional investors in both Israel and the U.S., the key will be monitoring not just the court proceedings, but also how trade partners and corporations adjust their strategies in anticipation of shifting policies. Until greater clarity emerges, risk management and flexibility will remain paramount in navigating Wall Street’s uncertain terrain.