Weekly Investment Perspective

Markets finished the holiday-shortened week modestly higher as investors digested a major U.S. Supreme Court ruling that reset the administration’s tariff playbook—an important development that helped ease some near-term trade uncertainty even as policy headlines remain fluid. At the same time, rising potential of U.S. military action in Iran added fresh fuel to geopolitical concerns, pushing oil prices higher and keeping investors attentive to potential spillovers into inflation and sentiment. Despite continued day-to-day volatility around trade and geopolitics, U.S. equities ended the week higher. The NASDAQ rose 1.5%, supported by renewed strength in technology shares and improving sentiment in small cap equities. The S&P 500 was up little over 1%, while the Dow ended 0.25% higher.

Internationally, markets added to their solid year-to-date gains as the MSCI All Country World ex-U.S. index rose 0.9% for the week. Global PMI data for early 2026 showed that economic expansion gained momentum across manufacturing and services, supported by stronger output and rising new orders. However, subdued business confidence and intensifying cost pressures raised questions about the durability of the recovery. As economies continued to adjust to shifting U.S. trade policy and geopolitical uncertainties, investor sentiment abroad remained cautious yet resilient.

This week’s political developments played a central role in global risk dynamics. The U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) did not give the president the authority to impose broad, country-level tariffs, overturning President Trump’s emergency tariffs and spurring a relief rally—particularly for companies and markets sensitive to U.S.–China trade flows. The decision effectively nullifies many of the country-level tariffs (which have accounted for roughly 73% of the new tariff revenue collected since President Trump returned to office), while leaving in place other sectoral tariffs implemented under different authorities (e.g., Section 232). Importantly, the ruling also raises the prospect of retroactive refunds, with estimates around $170–$175B, which is a meaningful swing factor for importers and the Treasury. Amazon and other import heavy firms rallied on expectations of reduced cost pressures, though the administration moved quickly to preserve leverage by pivoting toward alternative statutory authorities, including a new baseline 10% “global tariff.” In practice, the ruling may reduce average tariff rates by roughly 3 percentage points near-term even if the White House works to rebuild the framework through other channels.

U.S. economic data reflected a moderating growth environment. Fourth quarter GDP grew at 1.4%, signaling slower momentum as 2026 begins. Labor market indicators remained a bright spot, with initial jobless claims falling by 23,000 to 206,000—suggesting continued resilience. Inflation data from January showed continued disinflation, with CPI and PCE trends broadly aligning with expectations, although global indicators point to renewed price pressures in certain sectors. Taken together, the data still supports a “moderating but not breaking” growth narrative with enough resilience to keep the Fed patient, but softening momentum that keeps rate-cut expectations alive if inflation continues to cooperate.

Turning to the week ahead, markets will be watching whether consumer confidence continues to hold up amid the tariff back-and-forth, alongside PPI for any early signs that higher import costs are seeping into the pipeline. Additionally, markets will closely follow President Trump’s State of the Union address and a series of Federal Reserve speeches that may offer further insight into the policy outlook, especially after the Supreme Court’s tariff reset.

The earnings calendar includes several important announcements. Nvidia reports after the close on Wednesday, an important barometer for the durability of the AI infrastructure investment cycle. The Home Depot and Lowe’s also report this week, giving insight into consumer spending and the housing market.

2026 The Long View | First Merchants Bank