The Supreme Court strikes down Trump's 'emergency' tariffs... The questions, and some answers... Trump's backup plan... The market doesn't really care... Why GDP slowed... AI is still carrying growth...
Editor's note: Dan Ferris is off today, so we don't have his usual Friday Digest. The timing worked well, though... It means Nick Koziol and I (Corey McLaughlin) can fill you in on today's breaking news...
About those tariffs...
A large chunk of President Donald Trump's tariffs are illegal. That's what the Supreme Court said today, delivering a decision that we have long expected.
Last April, just days after Trump and the White House threatened startlingly high "reciprocal tariff" rates against the world on "Liberation Day," a group of small businesses filed suit against them.
Trump had cited the International Emergency Economic Powers Act ("IEEPA") of 1977 to impose tariffs in response to a "national emergency" of a trade deficit. The suit claimed Trump illegally misused that law and threatened their businesses, and it seemed to us that they had a good case.
As we wrote in the April 15, 2025 Digest, headlined "The Case for Staying the Course"...
I am not a lawyer, but I do know these things typically take a while to reach an ultimate conclusion... and this case seems destined for the Supreme Court.
When you pair this suit with what we've heard recently about tariff "flexibility"... exemptions... and expected trade deals with more than 10 foreign partners to be announced in the future, it sure sounds like the tariff war is losing its teeth.
I could be wrong. But all of this could mean more "less bad" news for the market...
I think a lot of investors were expecting this outcome too, or at least they should have been... Over the ensuing months, as the White House used tariff threats to negotiate "deals," the market reacted to them less and less... and then not at all.
As our Director of Research Matt Weinschenk shared earlier this year, the average tariff rate (even before the Supreme Court nullified many tariffs) was around 27%. But the actual rate "only" added up to about 14% after various exemptions and carve-outs.
These double-digit increases in import costs have affected businesses, including a lot of small businesses. But overall, the rates aren't as high as they could have been. And that's "part of the reason why tariffs haven't disrupted the economy as badly as expected," Matt wrote.
Still, there are questions about what the Supreme Court striking down tariffs means...
Among them: How will refunds go, or will they happen? Or will the White House try other ways to impose the same tariff rates? And will that work? Today, we have some answers for you, but some remain.
Well, first, you should know that some tariffs survived the Supreme Court's ruling. For example, steel and aluminum tariffs fall under another clearer law – Section 232 of the 1962 Trade Expansion Act – that allows for tariffs to protect "national security."
Plus, Treasury Secretary Scott Bessent has said in the past few months that the White House can turn to other (legal) ways to impose similar tariffs. The 1930 Tariff Act, the 1962 law, and the 1974 Trade Act all allow for paths to imposing tariffs.
Trump said in a press conference this afternoon that the White House is going to use them. "We have very powerful alternatives," he said, that are "even stronger." He said he hoped to impose more tariffs, but the process takes a little more time.
He also said it is "ridiculous" that the Supreme Court opinion finds he can't charge countries "even $1" under IEEPA, but that he is "allowed to cut off any and all trade or business with that same country." As he put it, "I can destroy the trade... but I can't charge $1."
In any case, Trump announced a backup tariff plan... The White House will keep Section 232 tariffs in place and impose a 10% global tariff under Section 122 of the 1974 trade law, which allows a president to impose as high as a 15% tariff for up to 150 days to address trade deficits. That will start in the coming days.
"We have tariffs, we just have them in a different way," Trump said.
We don't know if this is the entire backup plan... what new tariffs will stick... or when or if refunds to U.S. businesses will be due in the meantime. On refunds, Trump said, "I guess it has to get litigated for the next two years," or "five years," he later added.
In a dissenting opinion as part of the 6-3 decision published today in Learning Resources, Inc. v. Trump, Supreme Court Justice Brett Kavanaugh acknowledged this part of the story (while also saying it doesn't have anything to do with the decision about the law)...
The interim effects of the Court's decision could be substantial. The United States may be required to refund billions of dollars to importers who paid the IEEPA tariffs, even though some importers may have already passed on costs to consumers or others. As was acknowledged at oral argument, the refund process is likely to be a "mess."
(Kudos to you if you bet on the Supreme Court saying "mess" in its decision.)
No tariffs, or minimal tariffs, and refunds to businesses would help out those companies. But I can't imagine it would lead to prices on goods and services moving lower. And potential tariff repayment also means the government has to come up with more money that it doesn't have (i.e., more debt).
And just yesterday, Trump said, "Without tariffs, this country would be in such trouble right now," alluding to their role in his negotiations with other countries.
Today, the president slammed those who voted against the legality of the tariffs under an emergency declaration. He said he was "absolutely ashamed" of them, called them "disloyal to our Constitution," and accused them of being swayed by foreign interests rather than American ones.
The market's knee-jerk reaction...
Upon release of the Supreme Court decision this morning, Mr. Market indicated a reaction in the ballpark of "who knows, but this seems like good news."
The major U.S. stock indexes initially bounced higher from flat and slightly down levels shortly after 10 a.m. Eastern time, searched for direction, then finished mostly higher. Only the small-cap Russell 2000 Index finished slightly lower, bucking the prevailing trend like yesterday.
The tech-heavy Nasdaq Composite Index was up the most (almost 1%). Technology supply chains could benefit from lower costs and fewer potential disruptions. Still, you wouldn't necessarily expect tech stocks to be the biggest beneficiaries of erasing, reducing, or pausing tariffs.
Broadly, the market did not react as much as it could have. So, then, again, maybe all this makes sense, especially if you share our opinion that the market has moved on.
All this said, what do you think?...
We know tariff uncertainty has affected a lot of people in the real world. You may recall we had a big discussion about tariffs in our mailbag and many issues in 2025...
For all our small-business owners out there who wrote in to us last year about the challenges you were dealing with regarding tariffs, I'm curious to know how things have gone since, what you're planning to do now or what you think about this decision.
Let us know at feedback@stansberryresearch.com.
Tariffs aren't the only news of the day...
Earlier this morning, the Bureau of Economic Analysis reported a 1.4% rise in U.S. GDP in the fourth quarter of last year versus the previous quarter. That's still growth, but it was well below the 4.4% the U.S. economy saw in the quarter prior.
And maybe more telling, it was only half of Wall Street's expectation of a 2.8% increase.
A big part of the declining growth was due to government spending. The government component of GDP made for a nearly 1% drag on growth in the last three months of 2025.
Before you get too excited about the government changing its spending ways, recall the six-week government shutdown that ran from October 1 through November 12.
At the same time, today's GDP report included more evidence that higher inflation is still a thing...
The personal consumption expenditures ("PCE") price index checked in at a 2.9% year-over-year increase... The PCE is the Federal Reserve's preferred measure of inflation, at least under current Fed Chair Jerome Powell.
And the GDP Price Index, another inflation gauge, increased 3.7% in the fourth quarter.
On this morning's open, as we mentioned, the major U.S. stock indexes were flat to slightly down, while inflation hedges and hard-asset prices were up. As Stansberry Research analyst Brian Tycangco succinctly observed in a post on social platform X...
As we discussed yesterday and my colleague Steven Longenecker wrote about today, an unresolved military conflict with Iran... and now the questions about reimposing tariffs and a "wild card" Federal Reserve in 2026... are also supporting a higher gold price.
And this is all happening while investors are grappling with risks tied to what has been a large driver of economic growth over the past several years. There's a big story about AI embedded in this GDP report, too...
AI investment continued to be a huge part of the GDP increase...
The "information processing equipment" component of GDP added 0.65 percentage points to the overall growth in the quarter.
This includes things like computers, hard drives, memory storage, communications equipment, and more... all the stuff involved in the AI supply chain, and that has been in high demand.
So, said another way, AI spending accounted for nearly half of the whole country's economic growth in the fourth quarter.
That continues a trend from the first three quarters 2025...
Last month, the St. Louis Federal Reserve published an article titled "Tracking AI's Contribution to GDP Growth." In the first nine months of 2025, the information-processing-equipment component of GDP added 0.42 percentage points to total GDP growth.
When you include other AI-related spending – like software, research and development, and data-center construction – that moves up to 0.97 percentage points. With the total economy growing 2.51% in the first nine months of the year, that means that AI investment accounted for more than 38% of the total economy's growth.
That's not entirely a bad thing. It is growth in the U.S. economy. Still, the concentration has increasingly drawn current tech investment into some uncomfortable comparisons. From the St. Louis Fed's report, for example...
Our analysis suggests that the recent investments in AI-related categories have contributed significantly to the real GDP growth in 2025. It has surpassed the contribution of IT components to the real GDP growth made during the dot-com boom, both in levels and as a share of GDP.
In 2000, Internet-related spending accounted for about 28% of growth in the first three quarters. That's much less than AI's share over the same period of 2025. And the fourth quarter of last year more or less continued the trend.
In short, the economy 'booms'... as long as Big Tech keeps spending...
And for now, they are.
As we wrote in the February 9 Digest, "hyperscaler" companies – Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Oracle (ORCL), and CoreWeave (CRWV) – have pledged more than $660 billion in AI investment for 2026.
Here's a chart from the Stansberry's Investment Advisory team showing parabolic spending growth...
This year, the $660 billion projected spending will be more than 4 times these companies' capital expenditures ("capex") in 2023.
But, as you know, we wonder how long this spending can go on for...
As we wrote in that February 9 Digest...
Only one of the four big companies – Microsoft – is expected to be able to cover its capex with the cash it generates from its operations this year. That means the rest are going to have to come up with the money another way – like with new debt or share offerings.
We're not the only ones concerned...
In the recent monthly Bank of America Global Fund Manager Survey of professional money managers, a net 35% of respondents said that companies are "overinvesting" on capex. This survey question has been in "overspend" territory for three straight months.
The market is telling us the same...
The Magnificent Seven – as measured by the Roundhill Magnificent Seven Fund (MAGS) – just entered a correction, down 10% from previous highs. And it hasn't made a new high since October.
Meantime, AI-proof sectors like consumer staples are breaking out to new highs.
Proving the 'AI payoff' won't be easy...
Companies supplying hardware for AI, like chipmaker Nvidia (NVDA), are making plenty of money. For companies actually building AI applications, and buying Nvidia's hardware, it's not quite clear just how (or when) AI payoffs will show up on an income statement.
In its recent quarterly results, Alphabet noted that its Gemini app now has more than 750 million monthly active users. (And it works... Just ask our colleague Whitney Tilson, who used it to help diagnose an ailment his father was dealing with that doctors missed.)
Alphabet also said AI is driving an "expansionary moment" in its core Google search business.
Meta Platforms highlighted "AI-driven performance gains" in its latest report.
Those are great signs of progress, but they're not a concrete reading of AI turning into profits.
Dwarkesh Patel, who has become a leading (human) voice in AI discussions, appeared on a recent podcast with Anthropic CEO Dario Amodei, whose company makes the Claude AI chatbot. They said companies may or may not start to report real revenue from AI as soon as next year. From Amodei...
I don't think it's guaranteed that it's going to be immediate. I think it could be one year. It could be two years. I could even stretch it to five years, although I'm skeptical of that.
The uncertainty of the payoff is what's keeping Anthropic from investing more heavily in growth. More from Amodei...
Even though a part of my brain wonders if it's going to keep growing 10x, I can't buy $1 trillion a year of compute in 2027. If I'm just off by a year in that rate of growth, or if the growth rate is 5x a year instead of 10x a year, then you go bankrupt.
Oh, so the choices are incredible growth or bankruptcy? That's no trivial matter.
Amodei is guiding one of the most important AI companies in the world. And even he questioned some of the heavy investment in the industry. From the podcast...
I get the impression that some of the other companies have not written down the spreadsheet, that they don't really understand the risks they're taking. They're just doing stuff because it sounds cool.
He didn't specify exactly which companies he's talking about, but we can make an educated guess.
ChatGPT parent OpenAI has $1.4 trillion in spending commitments. Anthropic's Super Bowl commercial included a critique of ChatGPT's plans to use ads. And Amodei and OpenAI founder Sam Altman wouldn't link hands for a group photo at yesterday's India AI summit.
The Magnificent Seven doesn't have to worry about bankruptcy...
Anthropic and OpenAI are looking to make their money from artificial intelligence. But Alphabet, Amazon, Microsoft, and Meta all still produce loads of cash flow from their core operations and have been sitting on piles of cash. Until AI, they just didn't see an opportunity worth deploying so much of it.
Heavy AI investments won't change the fact that these companies have hugely profitable business lines.
Still, investors are getting impatient waiting for results of the AI investments to show up. The longer that takes, and the higher the investment pledges get, the more attractive the "rest" of the market will be.
We've been seeing that over the past few months... Mag Seven stocks have slipped, and S&P 500 sectors that represent "real" things – like energy, materials, industrials, and consumer staples – have risen double digits over the past three months...
As we mentioned on Tuesday, the equal-weight version of the S&P 500 just made a new high last week. It has also been outperforming its market-cap-weighted counterpart for the past several months. As our colleague Chris Igou wrote in DailyWealth Trader yesterday...
The roles are reversing to start 2026. Since late October, the equal-weight index is up 6.8% while the S&P 500 is down 0.3%.
This is driving the ratio out of its downward range...
Now, this ratio has been falling for years. So far, any reversal in trend hasn't lasted long. But with the breakout of the downward channel, this change could be here to stay in 2026.
That means stocks outside of the AI giants can have a big year.
This is one more trend we'll be tracking in the rest of 2026.
New 52-week highs (as of 2/19/26): Agnico Eagle Mines (AEM), Applied Materials (AMAT), Atmus Filtration Technologies (ATMU), BAE Systems (BAESY), CBOE Global Markets (CBOE), Ciena (CIEN), Canadian National Railway (CNI), Coca-Cola Consolidated (COKE), Coterra Energy (CTRA), Equinor (EQNR), iShares MSCI South Korea Fund (EWY), Comfort Systems USA (FIX), Freehold Royalties (FRU.TO), Cambria Foreign Shareholder Yield Fund (FYLD), GE Vernova (GEV), Hubbell (HUBB), Kinder Morgan (KMI), Linde (LIN), Lumentum (LITE), Lockheed Martin (LMT), Altria (MO), Plains All American Pipeline (PAA), Invesco Oil & Gas Services Fund (PXJ), Robo Global Robotics and Automation Index Fund (ROBO), SandRidge Energy (SD), SSR Mining (SSRM), Texas Pacific Land (TPL), Tenaris (TS), State Street Energy Select Sector SPDR Fund (XLE), and State Street Industrial Select Sector SPDR Fund (XLI).
We've gone long today, so we'll eschew the mailbag. But we're looking forward to hearing about your thoughts on tariffs or anything else... As always, e-mail us at feedback@stansberryresearch.com.
All the best,
Corey McLaughlin and Nick Koziol
Baltimore, Maryland
February 20, 2026
