“Bloody September” Turns Into a Street Fight as Trump Dares the Courts With Mystery Backup Plan

Hope you enjoyed your Labor Day, because markets wasted no time reminding everyone that September is historically the most miserable month of the year for equities. Futures are red across the board this morning, with the Dow off about 0.6%, the S&P down 0.8%, and the Nasdaq slipping 1%. For context, the S&P has dropped more than 2% on average during September over the last decade, and the past five years have been even worse, averaging a 4.2% decline. So naturally, traders were already on edge heading into the month, and Friday’s court ruling gave them the perfect excuse to hit the sell button.

So what actually happened? A federal appeals court ruled in a 7–4 decision that most of Donald Trump’s global tariffs are illegal. The court argued that tariffs fall under Congress’ constitutional authority since they’re essentially taxes, and therefore the President cannot just unilaterally impose them by invoking emergency powers. It’s almost like the Founding Fathers hopped in a DeLorean, took one look at Trump, and thought, “Yeah, better make it extra clear that tariffs belong to Congress.” 

The legal mechanism Trump tried to use was the International Emergency Economic Powers Act of 1977, which is supposed to address genuine national security crises, not to decide whether India is selling too many mangoes to the U.S. The court’s language was pretty direct, calling tariffs a “core Congressional power,” which is legalese for: “Nice try, but no.”

(Source: Axios)

That said, here’s the catch: even though the ruling guts the legal foundation of Trump’s trade strategy, the tariffs themselves are still in place while the case heads to the Supreme Court. In practice, that means companies are stuck operating under the same tariff regime, but with a giant legal question mark hanging over their heads. And as we all know… markets hate question marks more than they hate rate hikes (which is really saying something). This is exactly the kind of uncertainty that forces investors to game out multiple scenarios… either the Supreme Court backs Trump and nothing changes, or it rules against him and suddenly trade agreements have to be torn up and rewritten from scratch.

Unsurprisingly, Treasury Secretary Scott Bessent did his best to project calm, insisting he’s “confident” the Supreme Court will back Trump’s use of emergency powers… though he also admitted the administration has a “backup plan” if it doesn’t. Of course, the backup plan in question is nowhere to be found (probably because it doesn’t exist yet). Bessent even tied the whole issue to fentanyl imports, arguing the emergency powers are needed to crack down on drugs flowing into the U.S. (I guess his logic is that because fentanyl is coming into the country, we should throw a tariff on Swiss chocolate… teach Nestle a lesson for America’s drug problem).

Trump, of course, wasn’t about to let the story run without his own spin. He jumped on Truth Social to remind followers that “ALL TARIFFS ARE STILL IN EFFECT!” and called the court “Highly Partisan.” He also made it clear he intends to keep using tariffs “to benefit our nation” with the help of the Supreme Court. And then without barely a pause, he even took a swipe at India, arguing the trade relationship has been “one-sided for decades.” So unfortunately, if you were hoping for a de-escalation in tariff rhetoric, this probably isn’t the week for it.

This brings us to a confusing risk–reward puzzle. If the Supreme Court rules against Trump, it takes the threat of an endless tariff arms race off the table, which is a clear positive for equities long term. But in the meantime, investors are staring down the barrel of September, which is already the stock market’s graveyard month. Layer on bond yields climbing (10-year at 4.29%, 30-year creeping toward 5%) and a jobs report on Friday that everyone’s treating like it’s the Hunger Games reaping, and you’ve got yourself a real clusterf***.

At the time of publishing this article, Stocks.News doesn’t hold positions in companies mentioned in the article.