Key takeaways
- Tariff ruling may spark short-term volatility
- Inflation moderates in Canada, UK
- Housing activity remains subdued
This article was updated Feb. 20 at 7:30 a.m. Pacific Time
Tariff decision could test markets
In a 6-3 decision on Friday, the U.S. Supreme Court struck down most of the tariffs implemented by the administration last year. Markets initially showed little reaction to the announcement, with U.S. equities rising by 0.3% while yields on the 10-year Treasury inched up by 2 basis points.
As investors continue to absorb this decision, some near-term volatility in markets is possible in the coming weeks. The Supreme Court left the question of whether existing tariffs collected need to be refunded to a future decision by lower courts. The Yale Budget Lab estimates that around $150 billion in tariff revenues had been collected in 2025 that would be subject to the Supreme Court decision. If the U.S. government were ordered to refund the entire amount collected, it is possible that Treasury yields could increase as markets digest the issuance needs that would result.
It’s also important to remember that in light of the Court’s ruling, the U.S. administration could try to reinstate some of the tariffs through other means. Many economists are of the view that a significant chunk of the tariffs could be “replicated” using other statutory regimes, though the process might take longer to implement. Amid this backdrop, investors should stay disciplined and focused on the long-term.
Our broader view on the U.S. economy remains generally constructive, as we expect positive tailwinds from broader artificial intelligence adoption and easier financial conditions to continue. On the inflation front, any adverse impulse related to the 2025 tariffs is likely to moderate in the second half of the year. Ultimately, we continue to believe 2026 could mark a transition from resilience toward a potential reacceleration in U.S. growth.
UK, Canada inflation shows further progress
Inflation data released this week from Canada and the United Kingdom offered encouraging signs. In Canada, year-over-year inflation moderated from December to January across multiple measures. Headline inflation eased, as did the Bank of Canada’s (BoC) preferred core measures and traditional core gauges. While the path back to the 2% target may be uneven at times, the broader trend supports the view that price pressures are gradually cooling.
In the UK, core inflation also continued to moderate on a year-over-year basis. On a month-over-month basis, core inflation declined, with softness evident across several goods and services categories.
What could this mean for central banks? In Canada, policy rates are already near the lower end of what is considered neutral, meaning they neither stimulate nor restrain economic activity. That suggests a higher bar for additional rate cuts in 2026 compared with last year. However, the Canadian economy continues to run below its longer-term potential, and uncertainty surrounding CUSMA (Canada-United States-Mexico Agreement) trade negotiations remains a headwind. As a result, we think there’s still a meaningful possibility of another rate cut from the BoC this year.
Meanwhile, in the UK, rates remain in restrictive territory. As inflation moderates, we expect the Bank of England to continue gradually lowering rates over time.
Housing weakness persists
In the United States, mortgage rates recently fell to their lowest level in several years. Even so, housing activity remains soft. For instance, the latest National Association of Home Builders confidence index came in weak, and pending home sales data also disappointed.
Similar patterns are emerging elsewhere. One example is in Canada, where home prices declined month over month in January and at a faster pace than they did in December.
While housing data may appear discouraging, it’s important to distinguish between residential housing and the broader listed real estate market. Listed real estate includes a wide range of property types, from shopping centers and senior living facilities to data centers and self-storage.
Even if residential housing remains under pressure, we think listed real estate can still play a role in portfolio diversification. In addition, valuations also appear more attractive relative to traditional equities. For investors seeking diversification across asset classes, we believe listed real estate remains an area worth consideration.