The US Court of Appeals for the Federal Circuit ruled 7-4 that Trump’s tariffs are illegal. The court stated that using the International Emergency Economic Powers Act (IEEPA) against countries like Canada, Mexico, and China was incorrect. This ruling has caused uncertainty in the markets as the week begins. Trump plans to appeal to the US Supreme Court, with the deadline set for October 14. It’s important to note that Trump appointed three of the nine justices, while six were appointed by Republican presidents.

The Supreme Court’s Critical Stance

The Supreme Court’s tough stance on presidential power, especially regarding actions without Congress, leaves the outcome uncertain. Until the Supreme Court makes its decision, the tariffs will stay in effect, but they may no longer be enforceable after October. The tariffs under discussion do not affect those on steel and aluminum, which will continue. If deemed illegal, these tariffs could significantly affect collected duties and ongoing trade talks. If the Supreme Court rules in Trump’s favor, it might raise concerns about unchecked presidential power. The situation remains tense with possible widespread economic effects. This court ruling puts us in a difficult position, creating uncertainty until the October 14 deadline for the Supreme Court appeal. This can be seen in the options market, where the VIX rose 8% last week, closing at 19.5. This suggests traders are beginning to seek protection against potential market swings.

Market Strategies Amid Uncertainty

The market is now facing a significant event, which is good for volatility strategies but risky for straightforward bets. Buying straddles or strangles on major indices like the SPY could help profit from large moves in either direction. It’s about betting on the reaction size rather than the outcome itself. We remember how similar situations unfolded during the 2018-2019 trade tensions. Tariff announcements caused immediate gaps in equity futures, with markets jolting wildly on every headline. We can expect this pattern to repeat in the coming weeks. Keeping positions light and flexible is essential. Sectors that are sensitive to global trade, such as industrials and major retailers, will likely experience the most volatility. The industrial sector already underperformed the S&P 500 by 2% last month, according to August 2025 data, as tariff discussions intensified. Derivative traders should also monitor currency pairs like USD/CNY and USD/MXN for stress signs. If the Supreme Court appeal fails and the tariffs are canceled, we might see a quick relief rally in companies affected by them, such as major importers, auto manufacturers, and tech firms with complex supply chains. Call options on these companies could become popular as the deadline approaches. On the flip side, if the Supreme Court backs the administration, it could lead to more trade chaos. This would likely push investors to a risk-averse stance, strengthening the US dollar as a safe haven. In that case, put options on multinational companies and ETFs linked to emerging markets would gain attention. Create your live VT Markets account and start trading now.

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