The Tariff Roulette Just Spun Again—And Nobody Wins

The first trading day of 2026 opened with what Wall Street calls a "relief rally," which is a polite way of saying: relief that markets didn't crater immediately. The S&P 500 squeezed out a pathetic 0.19% gain. The Dow, trying harder, managed 0.66%. The Nasdaq basically flatlined at –0.03%, dragged down by Microsoft, Meta, and other megacaps that had already been priced for human transcendence sometime in Q2.

But here's the thing nobody wants to talk about: that entire rally was built on anticipation of negative news being postponed.

On New Year's Eve—literally hours before we all pretended to care about fresh starts—Trump delayed tariff increases on upholstered furniture, kitchen cabinets, and Italian pasta. Not because he'd reconsidered the underlying policy. Not because advisors convinced him tariffs harm growth. But because the administration got spooked. RH and Wayfair jumped 7% and 4% respectively on what amounts to a stay of execution. Businesses treated a 12-month reprieve on known tariff increases as good news. This is where we've landed.

The structural absurdity is staring everyone in the face. Goldman Sachs estimated that tariffs alone pushed inflation up by 0.5 percentage points in 2025—which is precisely the Fed's margin of error. JPMorgan thinks 80% of tariff costs got absorbed by businesses in 2025. That figure is expected to plummet to 20% this year as inventory stockpiles run dry and companies stop voluntarily eating margin. Gold and silver posted their best years since 1979, up 64% and 144% respectively, because investors are now behaving as if the U.S. dollar might be moderately broken by June.

Meanwhile, the Fed sits in a paradox that no amount of rate cuts solves.

Powell's term ends in May. Trump is nominating his replacement this month. The betting is on Kevin Warsh or Kevin Hassett—both of whom have publicly positioned themselves as rate-cut advocates to, shall we say, impress the current occupant of 1600 Pennsylvania Avenue. At the same time, Cleveland Fed President Beth Hammack has already stated she favors holding rates steady into spring. The Dallas Fed's Lorie Logan is spooked by sticky inflation. Dissents on the rate-setting committee are expected to increase this year, not decrease. The institution that's supposed to be apolitical is now transparently political in a way that makes the 1970s look quaint.

And here's the actual villain in the story: the economy is too strong to justify the rate cuts Trump wants.

Q3 2025 saw GDP growth accelerate to 4.3% annually, but—and this matters—it was artificially inflated. Why? Because businesses front-loaded imports to beat tariffs, artificially suppressing the import component of the GDP calculation. The headline number looks healthy. The underlying mechanics are a grift. Consumer sentiment has plumped. Jobless claims are stable at historic lows. But household debt is rising, delinquencies are climbing, and the Tax Foundation estimates tariffs alone cost the average family $1,100 in 2025. Do more math: if tariffs intensify—and Trump is expected to reveal his full hand this month—that number could easily triple or quadruple.

Goldman anticipates an additional 0.3 percentage points of tariff-driven inflation in just the first half of 2026.

The S&P 500 is trading at a CAPE ratio of 39+, a level historically seen in 1929, 2000, and mid-2021. Wall Street strategists, as a bloc, are targeting 7,629 for year-end—an 11.4% rally from Friday's close. The Magnificent Seven (Nvidia, Microsoft, Meta, Tesla, Alphabet, Apple, Amazon) are down as a group and everyone's pretending this is a buying opportunity rather than a warning. Tesla reported Q4 deliveries that missed estimates while the company pivots to unproven robotaxis. Microsoft and Meta—the supposed AI champions—are being sold off every time they move. Nvidia is the only one keeping the semiconductor complex from imploding.

The tariff delays on furniture aren't policy. They're panic. Trump has a Supreme Court hearing scheduled for January 21 to determine whether he even has the constitutional authority to impose tariffs at this scale. The plaintiff cases—one from an educational-toy maker, one from a wine importer—could invalidate $130 billion in tariffs already collected if the Court rules against the White House. Imagine the cascading refund demands, supply-chain chaos, and market dislocations that triggers. Wall Street is pricing this in by... doing nothing. Which is the market equivalent of holding your breath and hoping the Supreme Court doesn't call.

The capital flows tell you everything. Bonds are leaking $15 billion. Stocks are attracting $25 billion. Crypto is getting $8 billion. Gold is getting $4 billion. This is a risk-on narrative masquerading as confidence when it's actually panic flight from assets offering 4%+ yields into anything that promises future optionality. Retail is buying the narrative. Institutions are hedging like they're expecting volatility they don't want to say out loud.

Here's what actually happens this year:

1. Trump names a dove as Fed chair. That person faces immediate political pressure to cut rates from a president who thinks 1% rates are patriotic.

2. Tariff uncertainty escalates through the Supreme Court decision. Markets swing wildly on headlines about the case. Business investment remains frozen.

3. Second-half inflation from tariff pass-throughs becomes unavoidable. Grocers, appliance makers, and retailers start raising prices materially. Consumers notice. Savings accounts get drained. The Fed's new chair has to choose between keeping rates low (and letting inflation drift toward 4%) or raising them (and admitting the tariff experiment created a policy disaster).

4. The market rallies anyway because it's 2026 and everyone's learned that fundamentals are decorative.

The "Santa Claus rally" failed for the third year running. The S&P 500 was down 0.9% over the last five trading days of December plus the first two of January. That's a technical signal some would pay attention to—if they weren't already committed to the idea that AI productivity will solve everything, tariffs are priced in, and valuations are "justified on earnings estimates we haven't updated since November."

Tesla will probably go to $2 trillion by mid-year because Elon promised robots and you've never been wrong betting on Elon. Nvidia will trade on supply and demand for chips that may not actually get deployed if AI ROI collapses. Gold and silver will keep climbing because central banks can't un-ring tariff bells and geopolitical insurance has value. The Dow, stuffed with defensive industrials and dividend payers, will outperform because people get nervous at the edges of bull runs and rotate to the least exciting stocks.

By May, when Powell hands the keys to his successor, it'll be Trump's economy, officially. Not the ghost of Biden policy. Not the Fed's phantom independence. His. And the betting market doesn't want to know what that means for inflation, growth, employment, or asset prices over a genuinely uncertain 18 months.

But they'll keep buying stocks anyway because selling them requires having somewhere else to go. And there isn't. That's not a recipe for a healthy market. That's a hostage situation with good PR.