US stocks fell Friday after President Donald Trump announced a sweeping 35% tariff on Canadian imports, escalating trade tensions and sparking uncertainty across global markets.
The Dow dropped 279 points, or 0.63%, while the S&P 500 slid 0.33%. The tech-heavy Nasdaq lost 0.22%. The losses ended multi-week winning streaks for all three indexes, with the S&P 500 also closing the week in the red.
Trump’s surprise tariff, set to take effect on August 1, sent futures lower late Thursday and raised fears of retaliatory trade measures from Canada. Though global markets have largely brushed off Trump’s recent tariff salvos—including a 50% tariff on Brazil earlier this week—the Canada move hit closer to home and unsettled investors.
The administration has yet to clarify whether the new duties will apply to all Canadian products. A White House official told CNN the tariff would likely increase existing levies—such as those on steel and lumber—from 25% to 35%, while imports shielded by the US-Mexico-Canada Agreement (USMCA) would remain exempt.
Investors Skeptical of Follow-Through
Despite the market reaction, some investors aren’t convinced the tariff will stick. The August 1 implementation date has led to speculation that the announcement is a bargaining tactic rather than a firm policy shift.
“Markets continue to bet on flexibility and walk-backs,” said Steve Sosnick, chief strategist at Interactive Brokers. “The so-called ‘TACO trade’—short for ‘Trump Always Chickens Out’—remains alive and well.”
Others, however, are less optimistic. “We could be heading toward a scenario where overly confident investors are forced to confront earnings downgrades and disruptive trade actions,” Sosnick added.
JPMorgan Chase CEO Jamie Dimon echoed the concern, warning Thursday in Dublin that markets may be becoming too desensitized to major geopolitical and trade risks. “Unfortunately, I think there is complacency in markets,” he said.
Muted Reaction Compared to Past Trade Turmoil
While Friday’s sell-off reflected investor unease, the losses were moderate compared to the market chaos during earlier rounds of tariff escalation in 2018 and 2019. Analysts at Bank of America noted that stock and bond markets “barely reacted” to the announcement, suggesting that many investors expect the situation to de-escalate.
Still, with economic data holding steady and the second-quarter earnings season underway, markets remain supported by fundamentals—at least for now.
“Our view is that tariffs will introduce short-term volatility but won’t derail the broader rally,” said Mohit Kumar, chief economist at Jefferies.
Yet others warn the risk to growth and corporate profits is real. “Markets should not dismiss Trump’s latest comments,” said Sarah Bianchi of Evercore ISI. “With recent wins both domestically and abroad, he’s more likely to follow through on tariffs.”
AI Stocks Prop Up the Rally
Despite trade tensions, tech and AI giants continue to power US markets. Nvidia (NVDA) rose again Friday, closing at a record high and extending its market cap above $4 trillion. The chipmaker has become the first publicly traded company to surpass that threshold.
Just five stocks—Nvidia, Microsoft, Meta, Broadcom, and Amazon—have accounted for more than half of the S&P 500’s recent gains, according to LPL Financial’s Adam Turnquist.
However, broader market participation remains narrow. “The median S&P 500 stock is still trading 12% below its 52-week high,” Turnquist noted.
As of July 10, the so-called “Magnificent Seven” tech stocks—including Apple, Tesla, and Alphabet—made up over 32% of the S&P 500’s total market value.
Bitcoin and Volatility Signal Risk Appetite
Meanwhile, Wall Street’s fear gauge, the CBOE Volatility Index (VIX), dropped to 16 on Friday—down sharply from highs above 50 in April. The CNN Fear & Greed Index shows markets hovering in “Extreme Greed” territory.
Bitcoin, too, is soaring. The cryptocurrency briefly surged past $118,000 on Friday, climbing over 9% in the past week and nearly 25% year-to-date.
Analysts at ING cautioned that while markets remain buoyant, the reemergence of tariff threats signals that “protectionism is policy, not posturing.”
“In short, the letters may have bought time, but they’ve also reignited uncertainty,” ING wrote. “For global markets and policymakers alike, the tariff saga is far from over.”
