Stocks Plunge as Trump Imposes 35% Tariff on Canada

Market Volatility Amid Tariff Threats and Tech-Driven Gains

U.S. stock markets experienced a decline on Friday following President Donald Trump's announcement of a 35% tariff on Canadian imports, marking a significant escalation in the ongoing trade tensions. The Dow Jones Industrial Average fell by 279 points, or 0.63%, while the S&P 500 dropped 0.33% and the Nasdaq Composite declined 0.22%. This marked a shift from recent gains, as the S&P 500 ended the week in negative territory and the Dow and Nasdaq both saw their three-week winning streaks come to an end.

The market reaction was not entirely unexpected, as stock futures had already fallen on Thursday night after Trump announced the proposed tariffs, which are set to take effect on August 1. Despite the initial drop, global markets largely remained unfazed by the threat, with the S&P 500 and Nasdaq closing at record highs on Thursday even after Trump had previously threatened a 50% tariff on Brazil.

Investors remain divided over whether the current market behavior reflects complacency or confidence in the ability of markets to withstand trade-related uncertainties. Trump’s comments during an interview with NBC News suggested that he views the tariffs as a positive move, stating that the stock market had hit a new high due to the policy. However, some analysts argue that traders have grown increasingly nonchalant about these threats, betting on the idea that Trump will eventually back down, a strategy often referred to as the "TACO trade" — short for "Trump Always Chicks Out."

Steve Sosnick, chief strategist at Interactive Brokers, noted that the perception of flexibility in tariff discussions has led many investors to bet on this outcome. “A lot of money has been made by traders betting on tariff malleability — why should they reverse course now?” he said. However, there is still uncertainty about whether Trump will follow through on his most disruptive proposals, such as a 50% tariff on copper.

Some investors are calling the president’s bluff, suggesting that the August 1 deadline may be a tactic to encourage negotiations. Yet, it remains unclear whether Trump will walk back his more aggressive measures or proceed with them. Analysts like Jamie Dimon of JPMorgan Chase have pointed out that the market seems somewhat desensitized to the ongoing tariff threats, though concerns about potential economic impacts persist.

Despite the uncertainty, the broader market has continued to push higher, driven largely by tech stocks. Nvidia, for example, reached a historic milestone by surpassing $4 trillion in market value, becoming the first publicly traded company to achieve this feat. The company’s stock rose 0.75% on Thursday and continued its upward trend on Friday, hitting a new record high.

Other major tech companies, including Microsoft, Meta, Amazon, and others, have also contributed significantly to the S&P 500’s performance in recent weeks. According to Adam Turnquist, chief technical strategist at LPL Financial, just five stocks — Nvidia, Microsoft, Meta, Broadcom, and Amazon — have accounted for over half of the index’s returns in the past month. While this highlights the dominance of a few large-cap names, the broader market has shown limited breadth, with the median S&P 500 company still trading about 12% below its peak from the past year.

The influence of the so-called "Magnificent Seven" — consisting of Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia, and Tesla — has also been notable. These seven stocks currently account for 32.6% of the S&P 500’s total market value, underscoring the concentration of gains in a select group of companies.

In addition to the stock market, other financial assets have seen strong performance. Bitcoin, for instance, briefly surpassed $118,000 on Friday, breaking previous records. The cryptocurrency has surged more than 9% in the past seven days and is up nearly 25% year-to-date, reflecting a growing appetite for risk among investors.

Market sentiment has been characterized by what some analysts describe as "extreme greed," as indicated by The News Pulse’s Fear and Greed Index. Despite the ongoing trade tensions and tariff threats, investors have shown a willingness to embrace risk, leading to continued gains in equities and other asset classes.

While the U.S. stance on protectionism remains firm, the situation is far from resolved. Economists at ING noted that although the recent negotiations may have provided temporary relief, they have also reignited uncertainty. For global markets and policymakers, the tariff saga is likely to continue, with implications for trade, economic growth, and investor behavior.