VIDEO: Stock Market Reacts to Supreme Court's Tariff Decision

In today’s Portfolio video, Chris Versace reviews the December PCE Price Index, the February Flash PMI report and the Supreme Court striking down President Trump’s tariffs.

While the December PCE price indices came in warmer than expected, the findings in S&P’s Flash February PMI report on the service sector, inflation and job creation add to our thinking that it will be some time until we see the next Federal Reserve interest rate cut.

While the stock market is trending higher in response to the Supreme Court striking down Trump’s tariffs, Chris explains why we will want to gauge Trump’s response to what has been a signature part of his economic policy before making any moves.

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Transcript

CHRIS VERSACE: Hey, folks, Chris Versace here, Friday, February 20. And boy, has it been a busy morning on the news front. We'll be breaking it all down with you in a second.

But as we take a look at it, the market is well off its lows of this morning, modestly higher. Looking to put in another gain for the week. But I would just say please remember, as we discussed in our opening comments, the eight key things for the stock market today, Friday. There are some things that we will want to pay close attention to over the weekend that could suggest a more iffy start to the final trading week in the month of February.

Yes, I am referring to the US-Iran escalating tensions, but there's some other things in there. So please, I would say if you're reading the opening eight things that can move the market buoy, that's great. And if you're not, I would suggest that you do. We cover quite a bit of ground in there in this latest, newest feature not just for the pro portfolio, but really at the street pro. But let's get started breaking down the news of this morning and talking about how we are going to end the week and prepare for the following one. Let's, as I like to say, get to it.

First and foremost, core PCE and headline PCE for December warmer than expected. Continues the trend of inflation perking up. But remember, this is December. So it's a little bit in the rear view mirror. Still not constructive for Fed policy, but really, we're more concerned with oncoming data.

And when we talk about that, probably the most freshest piece of data that we could look to was the flash February PMI report from S&P Global that came out at 9:45 this morning. And it really adds to the notion that inflation pressures are continuing to tick higher. Remember, over the last couple of days, we've seen more reports from companies that are putting in fresh price increases in 2026. And obviously, that will take some time to flow through the data. But again, what did the flash February PMI have to say on inflation?

Direct quote from the report, average prices charged for goods and services increased in February at the steepest rate since last August, rising at an elevated rate well above the survey's long run average. Although selling price inflation moderated in the manufacturing sector to a 14 month low, attributed to increased discounting to stimulate sales-- that's a flag for us for margin pressures-- services inflation jumped to a seven-month high, registering one of the strongest rates of increase recorded over the past 3 and 1/2 years. Higher prices were widely linked to the need to pass through increased supplier charges in turn often associated with tariffs, as well as rising labor costs.

Measured across goods and services, input cost inflation ticked higher and remained elevated above long run levels in both sectors, albeit below some of the peaks seen in the last year. So what that tells us is that inflation pressures are picking up, and they are, no surprise, fingering tariffs. And that has been one of the root causes for why companies have said in January and February to date that they are passing along fresh price increases.

Now, those comments from S&P, they do not suggest that inflation pressures are going to wane anytime soon. At best, they will remain sticky, potentially ticking higher. And that tells us that we should not expect another rate cut anytime soon, especially since S&P's initial February findings show the job market rose, albeit modestly, for the third consecutive month. So we're not seeing the falloff in the jobs market that would really concern the Fed. Rather, seeing some of the other data that we've seen from ADP and a few others, odds are the job market's going to continue to grow just at a very slow pace.

We also saw today that the GDP reading for the fourth quarter of 2025 came in at 1.4%, with an estimated 1.2% impact stemming from the government shutdown. Here's the thing, folks. Even if we take that into account, the implied 3.6% figure is still below the 4.5% figure for the September quarter and below even the more robust figure for the June quarter.

Now, let's think about these GDP numbers. About 85% to 90% of it stems from the service sector. That begs the question, what are we seeing in that flash February PMI report from S&P about the service sector? Well, let's get some context.

In the fourth quarter of 2025, the service sector PMI-- again, per S&P Global-- was around a reading of 54. December, 52 and 1/2. January ticked up 52.7. February, 52.3.

That tells us that the economy in the current quarter, when you look at the January, February service sector PMI readings, it's likely to be slower than what we saw in the December quarter. Again, a slower economy, slower job creation, not one that's going to spur the Fed into action because it's not contracting. Neither one is. But at the same time, inflation ticking higher.

So it's hard to see the Fed doing anything. I think they're going to stay on the sidelines for the time being. But I will say that if we continue to see the same data, it's going to raise questions about what the Fed is going to do in the balance of the year, and it's going to raise fresh questions about what the next Fed Chair may really do.

Now, as I was preparing to share these comments with you, it was reported that the US Supreme Court struck down President Trump's sweeping global tariffs. The Supreme Court justices, in a 6-3 ruling, upheld a lower court's decision that President Trump's use of the 1977 law exceeded his authority. Now, let's mash together some of those comments.

Again, going to the ones about that February flash PMI and what's driving the uptick in inflation, it fingered tariffs. So yes, we know that tariffs have stoked inflation. And the initial reaction to the market was a little positive out of the gate, perhaps thinking that this could lead to lower inflation ahead. We'll have to see on that front.

But let's also remember, too, that we're going to want to see how President Trump responds to this ruling, if and how he aims to pursue tariffs on an ongoing basis. Remember, tariffs have been a signature part of his policy, at least so far. And the odds that he would simply abandon them without a fight, hard to see.

Rather, we're going to want to see what course of action does he take? Remember, he has had some other workarounds. There's been some talk about this in the past, but what does he actually do is what we will want to see. At least in the near term until he says something, there is going to be a renewed, in my opinion, specter of uncertainty in the market as we wait to see.

He may come out later today and say something. He may wait and say something over the weekend. But I find it hard to believe that he's going to abandon this, again, signature part of his policy, especially as he would look to save face against the ruling with world leaders. So we'll have to see what happens.

Does this mean that the market can get a little choppy as we close out today? I think that's likely. Could it also mean that we start the week off next week a little choppy, as well? Again, US-Iran, escalating tensions, potential fallout from this ruling by the Supreme Court against Trump's tariffs suggest that we could. So we're not going to move today with the portfolio.

Rather, let's take a beat, let some of the uncertainty potentially fall to the wayside. Let some things percolate. Let's learn and see what happens.

But if you're wondering, does this change anything from our long-term game plan with the portfolio of continuing to follow where spending is happening, whether it's by enterprises, consumers, or government entities, looking for companies poised to deliver superior earnings growth, and entering them at a favorable risk to reward trade-off, the answer to that, my friends, is no, it does not. If you're also thinking, at least in the near term, are we going to continue to track very closely the S&P 500 relative to its 50-day moving average and its 100-day moving average, that is also the case.

So we'll have a lot more to say on those things as we close out today and kick off next week, but I also wanted to share with you, I know some folks have been patiently waiting for the updated portfolio table, consensus earnings estimates, RSI levels, and a few other things. And we had fully intended to publish that as we close out the week. However, given the confluence of data that we got and that Supreme Court ruling, we're actually going to hold that table back because some of those RSI levels are bouncing around. We want to see where they settle out as we close out today so we can really, if need be, have a clearer picture on where we want to start the week next week.

When we do publish the table, we will have updated panic points, updated pickup points, as well. And I think we want to let all the news settle in so we can determine more accurately, smartly, more prudently when and where to put some capital to work. So we're going to hold that table till Monday. But rest assured, we have a lot more coming your way today.

We also have the weekly roundup, and over the weekend we'll have our latest batch of portfolio signals. These are the ripped from the headline confirmation points not only for the portfolio's investment strategies, but for our holdings, as well. So, my friends, a lot to go yet on this Friday. Stay tuned. We're coming at you.