U.S. equities experienced significant gains on Wednesday as the Supreme Court raised questions regarding President Donald Trump's tariffs, leading to optimism that some of these duties might be rolled back. Notably, shares of chipmaker Advanced Micro Devices (AMD) and other companies in the artificial intelligence (AI) sector rebounded from previous valuation concerns that had affected the market.
The Dow Jones Industrial Average surged by 225.76 points, or 0.48%, closing at 47,311.00. Similarly, the S&P 500 rose by 0.37% to finish at 6,796.29, while the Nasdaq Composite advanced by 0.65%, settling at 23,499.80. These positive movements were largely attributed to the market's reaction to the Supreme Court's hearing on Trump's tariffs.
Investors closely monitored the Supreme Court proceedings concerning whether President Trump had the authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA). The justices expressed skepticism about the legality of the extensive tariffs, prompting traders to reduce their bets on the likelihood of the Supreme Court upholding these tariffs. This skepticism was evident in the prediction markets, where the odds of the court supporting Trump's tariffs dropped significantly.
Detroit automakers, including Ford and General Motors, both saw their shares rise more than 2%, taking advantage of the favorable sentiment surrounding the tariff discussions. Additionally, Caterpillar, a manufacturer of construction and mining equipment, saw a notable increase of about 4% in its stock price.
Phil Blancato, the Chief Market Strategist at Osaic, commented on the ongoing debate regarding the effectiveness of tariffs, noting that clarity about their impacts might not come until the first quarter of the following year. He indicated that the lack of understanding around the tariffs contributes to a sense of disillusionment among investors.
Advanced Micro Devices, which initially opened lower, eventually gained 2.5% after announcing third-quarter earnings that exceeded analyst expectations. This positive outcome lifted other AI stocks, contributing to a broader recovery in the sector. Companies like Broadcom and Micron Technology also reported gains of 2% and approximately 9%, respectively, reversing losses from the prior session.
Despite this recovery, some AI-related stocks faced challenges. Palantir continued its decline, dropping over 1% after falling nearly 8% the previous day due to concerns about its inflated valuations. The stock is currently trading at over 200 times its forward earnings, raising questions about its sustainability.
Equity investors received encouraging economic data on Wednesday, as the ADP payrolls report indicated stronger-than-expected job growth, which reflects a robust labor market. This report, along with a positive ISM services index, supported the upward trend in stock prices. However, the good news also led to an increase in yields, which some investors view with caution as expectations for a third Federal Reserve rate cut in December grow.
Blancato also emphasized that a strong labor market implies that the economy is not entering a recession. He noted that while current market conditions are peculiar due to stretched valuations, he does not foresee a significant correction or substantial upward movement without a major catalyst.
The Supreme Court's hearing on Trump's tariffs represents a crucial legal and policy challenge for his administration. The justices are tasked with determining if the president can impose tariffs under the IEEPA. The outcome could have profound implications for U.S. trade policy and economic performance, although any ruling may take months.
Speculation surrounds how the Court may decide, with potential scenarios ranging from completely overturning the tariffs to allowing them to remain in place. Analysts and market participants are closely monitoring developments, anticipating widespread implications for various sectors.
On Wednesday, nine stocks in the S&P 500 achieved new all-time highs, including Kellanova, Cardinal Health, and McKesson. Conversely, 13 stocks hit new 52-week lows, highlighting the mixed sentiment in the market.
In other notable movements, The RealReal received an upgrade from KeyBanc ahead of its earnings report, reflecting optimism about the secondhand clothing market's growth. Meanwhile, traders adjusted their expectations for various stocks as they reacted to the economic data and tariff discussions.
As the market digests the implications of the Supreme Court's deliberations and the latest economic data, investors remain cautious yet hopeful. The effects of tariffs, earnings reports, and macroeconomic indicators will continue to shape market dynamics in the coming weeks.