Evercore ISI's Krishna Guha: Supreme Court outcome on tariffs is 50-50

Market Overview - S&P and NASDAQ experienced their worst day in about a month, with Russell 2000 closing below the 50-day moving average, indicating increased market volatility [1] Tariff and Trade Outlook - The probability of the court upholding Trump's tariffs is estimated at 50%, contrasting with betting markets that suggest a 40% chance of the tariffs being overturned, indicating a higher probability than consensus for Trump to prevail [3] - If tariffs are not upheld, it could lead to market negativity due to deficit concerns, rising bond yields, and increased uncertainty regarding future tariffs [4] - A potential positive outcome could be a more structured tariff regime, which may provide medium-term stability despite near-term uncertainty [4] Economic Indicators - There is a tension between seasonal market dynamics and concerns over high valuations, particularly in AI-related sectors, suggesting a need for market digestion before further gains [6] - The Federal Reserve's trajectory for interest rate cuts is less certain, with a 65% probability of a December cut, but expectations of a pause in cuts thereafter [7][8] - Discrepancies in economic data show that while services are accelerating, manufacturing is weakening, contradicting the intended strengthening effects of tariffs on manufacturing [9][11] Consumer Behavior - The economy is exhibiting a K-shaped recovery, with disparities between high-end and low-end consumers, affecting consumer discretionary stocks [11][12] - Companies like McDonald's are reflecting significant signs of weakness in sectors related to lower-end consumers, despite overall solid performance in services [12]