US Supreme Court decision on tariffs vital for broadening out of stock market rally

The year has got off to a strong start for risky assets, with further gains for global equities on Tuesday and US stocks reversing earlier losses to join in the global rally. It’s hard to pin down one market theme, however, it is clear that the investors have a strong appetite for stocks, and that they are, for now, favouring stocks outside of the US.

A pro-cyclical rally has seen stock indices in Asia, EM and the UK reach record highs in the early days of 2026. This cyclical rally has defied geopolitical fears caused by events in Venezuela. The muted impact from Venezuela is further evidence that financial markets are adept at absorbing geopolitical risks.

However, there could be another driver for markets in the coming days. The US Supreme court will rule on the legality of President Trump’s global tariffs this Friday, coincidentally the same day that we get December’s US Labour market report. The combination of an NFP report and the US court ruling could combine to make it a volatile end to the week.

The Supreme Court’s decision on Friday has huge ramifications both domestically and internationally. If the court rules the tariffs legal, then it could take the edge off the recent equity market rally, as fears grow that Trump could announce even more tariffs. If the court rules them illegal, then it could limit the administrations plans for tax cuts, as these were expected to be partly funded by tariff levies, which could weigh on US stocks that are linked to the consumer.

Polymarket, the prediction market that allows users to gain or lose based on the outcome of world events, shows 25% of users are betting on the Supreme Court supporting Trump’s tariffs, which suggests that the market thinks there is a good chance that the tariffs could be deemed illegal.

If the prediction markets are correct, this could trigger a relief rally in markets excluding the US, as markets price in the prospect of a reduction in tariffs and the average US tariff rate, which currently stands at  14.5%, the highest level in recent history. This could trigger continued gains for stocks, especially in countries where Trump imposed the highest tariff rates including India, Brazil, South Africa and Canada.

Chart 1: Polymarket’s prediction that the US Supreme Court will rule in favour of President Trump’s tariffs

Source: XTB and Bloomberg

As you can see, the MSCI World index ex US, the Nikkei, the FTSE 100 and the Eurostoxx 50 index are all outperforming the S&P 500. This could continue if the Supreme Court rules against the President’s tariff policies later this week.

Chart 2: Global stock indices and the S&P 500, normalized to show how they move together over the past 12 months

Source: XTB and Bloomberg