Tariff Ruling, Weaker Growth and More

Today, the U.S. Supreme Court voted 6-3 to strike down the Trump administration’s import duties effected through the 1977 International Emergency Economic Powers Act (IEEPA). The majority opinion, written by Chief Justice John Roberts, noted that the IEEPA law did not provide clear power to impose tariffs or place constraints on those tariffs.¹ The dissenting opinion highlighted how challenging the refund process may be.²

As we have shared in prior communications, we view the tariff ruling as an “edgeless” phenomenon, meaning having certainty on the ruling’s timing, decision, and implications is far from achievable. We have shared in media outlets and on these pages that, with a completely non-partisan lens, the Trump administration views tariffs as a key policy tool, and, where there’s a will, there’s a way. More specifically, Congressional Research and Bloomberg cite at least five other options for the administration to consider, all with varied durations, reasoning and, in some cases, limits to tariff rates.³

While capital markets have had a lot to digest, thus far it has been a muted reaction across asset classes: We note weaker government bonds due to some perceived concern about revenue loss, a marginally weaker dollar, and, slightly surprisingly, a somewhat strong equity market, at least initially. We continue to emphasize facts over narratives, and our consistent message has been that unless tariff policy significantly alters trade dynamics between countries or drives significant supply chain redirection, the corporate profit implications will be much less in magnitude than headlines may suggest. We will be paying particular attention to chief financial officer messaging and planning within select industries, particularly manufacturing and consumer discretionary companies, to gauge tone and capital planning changes.

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We always defer to our Northern Trust economics team for the house view, but what we have digested thus far from an investment perspective is consistent with what we have shared in recent Weekly Five publications. The Federal Reserve remains in a difficult position in terms of its rate cut decisions: It will likely have a new chairman in a matter of months, and the economic data has been mixed and subject to interpretation. The labor market remains decent on a headline basis, with unemployment registering at historically lower levels — but amid artificial intelligence slowly impacting select industries and ongoing trade uncertainty impacting hiring plans. Inflation has been improving, but the GDP price index (not the Fed’s preferred inflation measure but still important) unexpectedly jumped despite GDP coming in below expectations. The Fed’s preferred Personal Consumption Expenditures Index (PCE) was slightly stronger than expected, also suggesting some ongoing inflationary pressure.

Two items may have given investors a proverbial hall pass with this report. First, the government was partially shut down during some of the report’s observation period, which can impact measurement. Second, government spending (or the lack thereof) was the major growth drag, reducing growth by almost a full percentage point. With a likely favorable tax return environment for consumers and some businesses, the Q4 headwinds may be more than offset by coming fiscal stimulus, but a sluggish headline growth number may give the Fed some cover for a future nudge lower to interest rate targets. 

For those less familiar, private credit represents non-bank lending and financing across a variety of industries and debt structures. Investors participate in private credit through direct lending or through intermediaries who match lenders and borrowers. As global investors seek alternative return streams from more traditional categories like public equities or fixed income, private credit assets total $3.5 trillion, based on Alternative Investment Management Association (AIMA) year-end 2025 data, representing considerable size.⁶ Although once the purview of large institutions, more recently, private credit has become more widely available through a variety of mediums and vehicles.

Private markets have less liquidity than most public-market equivalents, and transparency is more limited. What we have seen thus far are a few fund-specific considerations that have in some cases been extrapolated to be potentially systemic or broad-based in nature. Public market gauges of credit health, including the spread or additional compensation lenders require from borrowers, remain very low relative to history. Equity price weakness centering on some larger intermediaries have raised eyebrows.

For us, two key catalysts would be cause for concern in private credit markets. The first would be deterioration in underlying credit conditions, which could be grounded in software sector jitters or other industry-specific matters. As the saying goes, risk happens fast, so we want to respect how credit acts across broad metrics. Second, should we see weaker-handed investors abandon the category without others willing to step in behind their exit, prices could act in an adverse fashion. Liquidity mismatches, where investors seek capital more quickly than the underlying portfolio can tolerate, are best avoided long before an investor engages in private assets. As always, what is actually happening within the marketplace versus the headlines that surround it are where we will continue to seek information to drive views.

With increasing tensions in the Middle East, investors are squarely focused on hydrocarbons and especially on risks that oil prices may rise on a sustained basis. While many headlines point out that oil prices have already moved higher, crude oil is almost half of where prices were in 2022, when Russia first invaded Ukraine. We continue to think oil prices are bounded due to ample potential supply, but we are focused on a few key elements as events unfold.

Most significantly, U.S. energy production has risen to record highs in recent years on the back of increased shale production, with natural gas production reaching record levels thanks to Permian Basin and Appalachian output. Equity markets have rewarded the energy sector since 2022: It has returned double that of the S&P 500 over that period and has even outperformed the technology sector. That dramatic outperformance follows a very challenged 10 years ending in 2020, during which energy stocks fell by 24% while the S&P 500 rose by 267%.

Following this challenging period for the energy sector, investors held energy companies accountable for what had become an almost Pavlovian response cycle: Almost on cue, when prices rose, integrated oil companies would send expensive, fixed-cost assets into offshore locations to drill more. Rigs would proliferate across the globe, energy prices would fall, and then profitability fell. Since that experience, shareholders have forced more discipline on capital deployment. An escalation in the conflict with Iran will impact prices: To get a sense of direction, however, it will be important to gauge how energy companies will respond and what shareholders will allow amid an accommodative administration for oil exploration.  

¹ https://www.supremecourt.gov/opinions/25pdf/24-1287_4gcj.pdf. Accessed 20 February 2026.

² Ibid

³ Gottlieb, Isabel. “Trump’s Options After Supreme Court Said His Tariffs Are Illegal.” February 20, 2026. Accessed via Bloomberg terminal

⁴ https://www.bloomberg.com/news/articles/2026-02-19/walmart-wmt-offers-cautious-profit-forecast-citing-fluid-backdrop. Accessed 20 February 2026.

⁵ Ibid

⁶ Press Release: Strong growth sees private credit market reach US$3.5 trillion. Accessed 20 February 2026.