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The stock market got a boost on Wednesday after Supreme Court justices appeared skeptical about the legality of a portion of President Donald Trump's tariffs. Certain names could get an even bigger boost if the government is forced to refund some of the tariff money, according to analysis by Wells Fargo. The Supreme Court on Wednesday heard oral arguments over the the levies placed by the administration under the International Emergency Economic Powers Act earlier this year. Justice Sonia Sotomayor told Solicitor General D. John Sauer: "You say tariffs are not taxes, but that's exactly what they are." She added: "They're generating money from American citizens, revenue." Justice Neil Gorsuch pressed Sauer on Trump placing the duties without congressional approval, citing emergencies such as international imbalances and fentanyl flowing into the U.S. He said: "It's a one-way ratchet toward the gradual but continual accretion of power in the executive branch and away from the people's elected representatives." The Dow closed up 200 points on Wednesday and the market was looking steady on Thursday as investors bet a partial tariff rollback would relieve some pressure on the economy. Should the Court rule against Trump, it may force the administration to return the revenue collected from the tariffs. While this may unnerve a bond market that sees these proceeds as a budget deficit stabilizer, it would give stocks a boost, many investors say. Specific names may get an outsized bump. Wells Fargo compiled a list of stocks that would benefit the most from tariffs being curbed. Specifically, they looked for companies that underperformed the S & P 500 by at least 2.5 percentage points during the "liberation day" declines in April and had their second-half earnings estimates cut by 10% or more on average, likely due to the tariffs. Industrial giant Caterpillar met the criteria. Between April 1 and April 8, the stock tumbled 17%, and its second-half earnings estimates were slashed by 12%. Investors may be pricing at least a more benign trade environment already. The stock is up 33% over the past three months and has soared nearly 57% year to date despite the April drawdown. HSBC on Thursday upgraded Caterpillar to buy from hold, citing upside from the proliferation of artificial intelligence infrastructure. "CAT has a full suite of primary power and backup power solutions for data centers, including diesel/gas generators and gas turbines. Power Gen sales related to data centers are recognized under the P & E segment. Driven by strong data center demand, Power Gen's sales contribution has almost doubled," analyst Helen Fang wrote. Other stocks that made the list include Nike, Five Below, Best Buy and Gap. As far as timing on the refunds, Goldman believes a ruling may come next month or in January. "We expect it would take several more months to refund the $115-145bn that would have been collected by the time the court rules," stated Goldman's economist Jan Hatzius in a note.
