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US stocks mostly fell on Friday after President Donald Trump threatened a 35% tariff on Canada — a sharp escalation in an ongoing trade war.
The Dow was lower by 364 points, or 0.81%, as of midday. The broader S&P 500 fell 0.41% and the tech-heavy Nasdaq Composite dropped 0.14%.
Stock futures dropped Thursday night after Trump announced the 35% tariff on Canada, set to take effect on August 1. The S&P 500 was on track to snap back-to-back days of gains.
Global stock markets had largely shrugged off Trump’s tariff threats this week. The S&P 500 and Nasdaq closed at record highs on Thursday despite Trump announcing a 50% tariff on Brazil the day before.
With stocks at record highs and trade uncertainty lingering, investors are divided on whether markets are complacent or there is room to push higher.
Trump on Thursday said in an interview with NBC News that tariffs on other US trading partners could also jump higher, citing the stock market’s strength. “I think the tariffs have been very well-received,” he said. “The stock market hit a new high today.”
Investors are increasingly nonchalant about Trump’s tariff threats, Steve Sosnick, chief strategist at Interactive Brokers, said in a note. It is yet to be seen whether embracing the “TACO trade” — betting that “Trump always chickens out” — could prove profitable or set investors up for loss.
“The blasé attitude once again stems from traders’ perception that tariff discussions remain flexible,” Sosnick said. “Heck, a lot of money has been made by traders betting on tariff malleability — why should they reverse course now?”
While Trump has unveiled widespread new tariffs, some investors are calling the president’s bluff, betting the Trump administration is seeking negotiations by pushing the tariff deadline to August 1. But it remains a gamble whether Trump will walk-back or levy his most disruptive tariffs — including a 50% tariff on copper.
“We could be setting up situations where highly sanguine investors might be forced to once again reckon with revised earnings guidance and the eventual implementation of tariffs,” Sosnick added.
“Unfortunately I think there is complacency in markets, and (they are) a little desensitized,” Jamie Dimon, CEO at JPMorgan Chase, said Thursday during an event in Dublin.
The announcement of a 35% tariff on Canada sent stocks lower, although losses were relatively contained compared to the tariff turmoil of March and April.
It’s unclear whether the new tariffs would apply to all Canadian goods. An administration official said the expectation was that imports the United States currently taxes at 25% would rise to 35%, but that those exempted by the US-Mexico-Canada free trade agreement would continue to be exempted.
“The stock and bond markets barely reacted to the most recent headlines on tariffs,” analysts at Bank of America said in a note. “The predominant view is that eventually things will settle at reasonable levels, some deals will be sealed and this round of negotiation can be ignored as it will not be disruptive.”
Other factors have come into focus for investors, too, including the start of earnings season for the second quarter. Economic data has also been relatively strong in recent months, helping support the market rally.
“Our view remains that tariffs will cause near term uncertainty and volatility, but should have only a limited impact in the medium term,” Mohit Kumar, chief economist and strategist for Europe at Jefferies, said in a note.
To other investors, however, concerns linger about a hit to economic growth and business activity.
“Markets should not dismiss Trump’s latest statements and that the next actual moves on tariffs are likely to be up,” Sarah Bianchi, senior managing director at Evercore ISI, said in a note.
“Trump frustrated with pace of dealmaking and feeling good about recent victories at home and abroad,” Bianchi said. “With markets at highs — more likely to lean into imposing tariffs.”
The S&P 500 and Nasdaq have pushed higher despite renewed tariff threats, buoyed by companies like Nvidia that have soared to record highs.
Nvidia (NVDA) on Thursday gained 0.75% to hit a record and closed above $4 trillion in market value, making it the first publicly traded company to reach that milestone. Nvidia gained 1.2% on Friday, hitting a fresh intraday record and extending those gains.
“Ultimately, as we saw in April, selling stocks or getting too defensive could put you on the wrong side of a no-looking-back, mega-rally,” Ross Mayfield, an investment strategist at Baird, said in a note. “Headline volatility is here to stay but that doesn’t preclude further market gains.”
Market gains have been driven by AI and tech stocks, according to Adam Turnquist, chief technical strategist at LPL Financial.
Just five stocks — Nvidia, Microsoft, Meta, Broadcom and Amazon — have contributed over half of the S&P 500’s returns across the past month, according to Turnquist.
“Breadth is a little underwhelming,” he said, noting the median S&P 500 company is trading about 12% below its peak in the past year.
Wall Street’s fear gauge, the CBOE Volatility Index, has also dropped significantly since April as markets have embraced relative calm. The VIX on Friday traded around 16 points, compared to trading above 50 points in early April.
Bitcoin rose above $118,000 on Friday, smashing through previous records. Bitcoin has surged more than 8% in the past seven days and is up almost 25% this year. The world’s largest cryptocurrency by market value has topped new records as investors have embraced a risk-on attitude.
“Extreme greed” or “greed” have been driving markets this week, according to CNN’s Fear and Greed index.
“Despite the flurry of outstanding negotiations, the US stance remains unchanged: protectionism is policy, not posturing,” economists at ING said in a note. “In short, the letters may have bought time, but they’ve also reignited uncertainty. For global markets and policymakers alike, the tariff saga is far from over.”
This story is developing and will be updated.
