What is life if not a game? Markets, like children, no sooner master one game than they're handed another. In 2024, investors fixated on how many times the Fed would cut rates. The return of Donald Trump to the White House changed the rules. Traders pivoted to buying the dip on the back of tariff threats that predictably turned into postponements. Now, a new game is taking shape: S&P 500 traders is trying to make sense of whether tariffs will be scrapped entirely by court order.

The US Court of International Trade's ruling that Trump exceeded his authority by imposing blanket tariffs landed like a thunderclap in clear skies. If those duties are struck down, inflation may not accelerate. Fiscal stimulus could gain traction, driving the US economy forward. And the reemergence of the American exceptionalism narrative could send the S&P 500 index toward new all-time highs.

Chart: US Tariff Trajectory

In reality, the situation is far more complex. Tariffs on steel, aluminum, and automobiles remain in effect. The White House has filed an appeal with the Supreme Court, which is more sympathetic to the president than the Court of International Trade. After all, it was Donald Trump who appointed several justices to the nation's highest bench. According to Goldman Sachs, even a ruling that bans import tariffs is unlikely to stop the former president. He and his team will simply find alternative legislative tools to invoke.

This fresh wave of uncertainty prompted the S&P 500 to retreat. A potentially supportive earnings report from NVIDIA arrived too late—after the market had already closed. The tech giant forecasted a $45 billion revenue surge for the second quarter, even as it expects an $8 billion hit from China due to export restrictions. NVIDIA wields outsized influence on the broader market. After all, the bull run of 2022 began with the launch of ChatGPT.

In the days ahead, it will become clear whether investors should return to the so-called "Trump pattern" of buying S&P 500 dips after tariff threats. Trump himself rejects the market's shorthand for this strategy—TACO—insisting that what markets call "fear-mongering," he calls "negotiation." His method, he says, is to start with sky-high import tariffs and then dial them back.

In theory, if the Supreme Court upholds the lower court's ruling and the tariffs are fully rolled back, the US economy could avoid both a recession and stagflation. Such a scenario could revive the narrative of American exceptionalism, buoying both the dollar and the S&P 500.

Technically, on the daily chart of the broad index, bears have re-entered the game, resuming their battle at the fair value level of 5,890. A break below this mark followed by a drop under 5,850 would trigger a classic 1-2-3 reversal pattern, signaling a sell-off. Buying opportunities may re-emerge if the index breaks above the recent local high of 5,935.