Weekly Update 2/20/2026: Tariffs Struck Down by Supreme Court
- Fed minutes hint at possible rate hike in future
- Housing data mixed
- GDP below estimates
- Deere stock moves higher
- Omnicom reaping benefits from merger
Tariffs
In a long-awaited decision, the U.S. Supreme Court struck down President Trump’s sweeping global tariffs in a 6-3 vote. The 170-page decision definitively undercut one of the president’s signature economic policies. The court rejected Trump’s argument that a 1977 law, the International Emergency Economic Powers Act, implicitly authorized both groups of tariffs--one related to all countries to ostensibly repair trade deficits and one related to Mexico, Canada and China in relation to the illegal flow of fentanyl. “Had Congress intended to convey the distinct and extraordinary power to impose tariffs, it would have done so expressly,” Chief Justice John Roberts wrote. Three conservative justices—Clarence Thomas, Samuel Alito and Brett Kavanaugh—dissented. Kavanaugh, in his dissent, said refunding tariffs already collected could be a “mess” with “significant consequences for the U.S. Treasury.” If fully allowed, refunds could total as much as $170 billion. The justices did not address the extent to which importers are entitled to refunds, leaving it to a lower court to sort out those issues.
Until Trump, no president had invoked the emergency-powers law as a basis to impose tariffs. The president claimed, for instance, that a decision against the tariffs would be “the biggest threat in history” to U.S. national security and “would literally destroy the United States of America” in posts to his Truth Social platform. Three different lower courts ruled the tariffs unlawful, including a specialized federal appeals court of national jurisdiction that said the emergency-powers law did not authorize tariffs of the magnitude Trump imposed. Across the three decisions, 15 judges weighed in on Trump’s actions, with 11 concluding the president exceeded his authority.
We anticipate that the White House will use other means to impose levies in certain industries. That process may be more cumbersome and more limited than across the board dues. Asking Congress to reimpose the sweeping tariffs seems politically unlikely. Given those facts and that the Supreme Court signaled skepticism through its questions when it heard fast-track oral arguments in November, the market reaction this morning to the decision was appropriately muted to slightly positive. Companies are likely going to have to litigate individually to get refunds, while at the same time find themselves in the crosshairs of new levies. So, the zero sum event translated into a market which was more focused on Fed talk and economic data which we highlight below.
The Fed
Minutes from the Fed’s Jan. 27-28 meeting show a committee divided over its next move. Several participants, the minutes say, believe that rates should likely be adjusted lower if inflation continues to decline within their expectations. Others think it “would likely be appropriate to hold the policy rate steady for some time as the Committee carefully assesses incoming data.” And yet a number of participants believe that easing policy is unwarranted until there is clear evidence that disinflation has returned. And, in a surprising call, some governors commented that the Fed could raise rates if inflation remains above the 2% target. “Several participants indicated that they would have supported a two-sided description of the committee’s future interest-rate decisions, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels,” a record of the central bank’s January meeting showed. Ultimately, the Federal Open Market Committee decided to leave the federal-funds rate unchanged at 3.50%-3.75% in a 10-2 vote, with the dissenters desiring a reduction in the benchmark rate.
Markets are betting that disinflation will continue. Fed officials have positioned tariffs as transitory pricing pressures. Labor market revisions released last week show that the economy appears sound, but there could be cracks appearing as employers slow the rate of hiring. The minutes, however, removed language pointing to increased downside risks to employment that had appeared in the three previous statements. The main takeaway is that the Fed, as expected, is going to remain patient and let the data guide them in deciding future steps. We believe that the future markets, which are predicting rate cuts starting in the second half of the year, are the most likely path given today’s available economic information.
Income and spending
The Fed’s preferred measure of inflation—the personal consumption expenditure (PCE) price—rose 0.4% on a headline basis and after excluding food and energy components for the month of December according to BEA data released this morning. On an annual basis, the so-called core rate rose 3.0%, which was slightly above the 2.9% pace expected in a survey of economists by Bloomberg. That is now a full percentage point above the 2.0% target level the Fed is targeting and is the latest evidence that progress on reigning in inflation has slowed. Bloomberg economists noted that “consumers are rotating away from tariff-affected goods and towards services.” The “supercore” PCE measure, which includes core services excluding housing, rose 0.34%, up from 0.25% in November.
Personal income rose 0.3% during December, less than November’s upwardly revised 0.4%. Real personal spending rose just 0.1%, down from a downwardly revised 0.2% in November. Nominal personal spending rose 0.4%, unchanged from a downwardly revised 0.4% in November. Goods spending contracted 0.5% thanks to less outlays on clothing and furnishings. Services, however, accelerated to 0.3%, led by spending on health care, housing and utilities. All this combined to show that the personal savings rate dropped to 3.6% in the last month of 2025, suggesting that consumers are stretched thin and have turned to dipping into savings or expanding credit to feed their spending habits.
GDP
Gross domestic product, or the value of all goods and services produced in the economy during a certain time frame, rose at an annualized rate of 1.4% in the fourth quarter of 2025. That was a downshift from the 4.4% pace in the third quarter. The Bureau of Economic Analysis reported that the economy rose at a 2.2% rate in 2025, below the 2.4% figure in 2024 and the weakest since 2022. The weak quarterly report was affected by the government shutdown, which subtracted about one percentage point from GDP. Federal government spending fell 16.6% during the quarter. Consumer spending, the backbone of economic activity, decelerated to a 2.4% pace during the quarter from the 3.5% spark it provided in the third quarter of last year. The weaker-than-expected print is likely to draw concern from economists and investors alike. Last week’s revised Labor Department figures about the job market showed that job creation slowed in 2025, especially given the uncertainty created by tariff announcements. The potential impact of productivity-enhancing artificial intelligence remains more of a theoretical possibility at this stage, but companies are spending lavishly to gain the upper hand with business investment growing by 3.7%. U.S. tech companies have already pledged to spend close to $650 billion this year on data centers, software development and related equipment and services.
Housing
We received some mixed messages from the housing industry this week. The National Association of Home Builders (NAHB) and Wells Fargo survey showed that U.S. homebuilder sentiment fell to a five-month low in February. The index at 36 reached its lowest level since September. A value below 50 means more builders see conditions as poor than good. “While the majority of builders continue to deploy buyer incentives, including price cuts, many prospective buyers remain on the sidelines,” NAHB Chairman Buddy Hughes, a North Carolina builder, said in a statement. “Although demand for new construction has weakened, remodeling demand has remained solid given a lack of household mobility.” About 65% of builders reported using sales incentives, unchanged from a month ago. Among the components of NAHB’s index, an index of sales expectations in the next six months fell to 46, remaining below the breakeven level of 50 for a second straight month. The gauges of present sales and prospective buyer traffic have each been below that threshold for at least a year.
New homes sales data from the U.S. Census Bureau painted a different picture. New residential construction in the U.S. rose to a five-month high as starts increased 6.2% in December to an annual pace of 1.4 million homes. Both single-family and multi-family (i.e., apartment buildings) starts rose at the end of last year. The data was delayed due to the Federal government shutdown, which was the longest on record. This suggests that builders, at that time, were encouraged by the prospect of potentially lower mortgage rates and the start of the new year to turn fortunes for the better. For most of the country, December saw relatively mild weather compared to the arctic blasts which ruled in January for a large swath of the mid-West and East coast. New residential construction is volatile from month to month. The report showed 90% confidence that the true monthly change ranged from a 4.5% drop to a 16.9% gain.
Company Events
SGK writes additional weekly commentary for clients of the firm detailing recent events and earnings of core equity holdings.
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Steigerwald, Gordon & Koch, Inc. [“SGK”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from SGK. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. SGK is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the SGK’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.sgkwealthadvisors.com. Please Note: SGK does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SGK’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a SGK client, please contact SGK, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.