The decision shreds the independent agency model in place since 1935

The momentum was not entirely AI-driven: communication services and consumer discretionary earned laurels across the pond, while energy and banks lifted European earnings. However, with the S&P less than 2% off its all-time highs, IG credit spreads at their 15th percentile on a 15-year retro­spective and the Fed ready to douse the flames, what keeps the fire burning? Enter SCOTUS.

First, the Supreme Court’s rejection of President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose the bulk of his ‘Liberation Day’ tariffs, will likely result in the government refunding over USD 160bn to corporates.

Potential tariff refunds boosted 1Q earnings for Ford and GM by approximately USD 1.3bn and USD 500m, respectively — albeit these were non-cash. Indeed, given initial uncertainty surrounding the timing of recovery, neither company upgraded full-year cashflow guidance to reflect receipt.

The tariffs impacted about 330,000 importers, which will now have to submit claims electronically and wait for US Customs and Border Protection (CBP) validation for payment. This will be phased, with provisional and recently finalised (or “liquidated”) entries likely going first; more complex cases may require court orders. However, Uncle Sam has already cut cheques for USD 23bn according to the CBP, so a lot of companies will get cash windfalls for levies long forgotten in the maelstrom that has been Trump’s trade policy.

More recently, the Court’s decision in Trump vs Slaughter confirms the erosion of directorial independence at federal agencies, which began with a 2020 ruling that Congress could not prevent the removal of the director of the Consumer Financial Protection Bureau (CFPB). The latest decision shreds the independent agency model in place since 1935 (following the Humphrey’s Executor vs United States decision) and effectively confers carte blanche powers on the president to remove directors of federal agencies at will (with one very notable exception, discussed below). This should expedite regulatory rollback, which has been a linchpin of Trump’s corporate agenda.

The administration averred at the outset that its freeze of proposed regulations would save USD 180bn, while its recission of various environmental, energy and transportation regulations will hack away a further USD 679bn in costs. Even taking these numbers with a pillar of salt, the savings for corporate America should be significant.

Cost benefits should be seen across areas as diverse as financial services (less stringent oversight for banks with under USD 250bn in assets), consumer services (suspension of investigations combined with personnel reductions at the CFPB), airlines (scrapping mandatory compensation for flight disruptions; waiving the fine against Southwest for its 2022 service meltdown), energy (relaxed methane and air pollution standards), pipelines (an end to Biden-era safety guidance; withdrawal of pending pipeline regulations), autos (relaxed vehicle emissions and fuel efficiency standards) and others.

The agency job that remains pink slip-proof from the president is that of Federal Reserve Governor. In Trump vs Cook, the judges preserved a “for cause” requirement in the presidential dismissal of a governor on the grounds that the Fed performs central banking and monetary policy functions, and serves broad constitutional and economic interests. Maybe. Does that make a Fed governor more important than, say, the chair of the SEC or the Nuclear Regulatory Commission? Either way, this decision will further fuel the markets. One of the few variables that really spooked investors was Trump exerting sway over monetary policy.

So, while the Fed may attempt this year to quench the flames of a market that is arguably running too hot, SCOTUS appears to have tipped a little petrol on the fire. However enjoyable the warmth is in the near term, it may have increased the longer-term risk of the house burning down.