Wall Street gave up gains Friday after President Donald Trump hit Canada with a fresh 35% tariff and promised more across the board. This came just a day after the S&P 500 set a brand new all-time high.
The Dow Jones Industrial Average dropped by 297 points, or 0.7%. The S&P fell by 0.3%, and the Nasdaq Composite ticked down by 0.2%.
“If Canada works with me to stop the flow of fentanyl, we will, perhaps, consider an adjustment to this letter,” Trump wrote in a post on Truth Social, referring to the new tariff hike . Later in the day, in an interview with NBC News, he confirmed plans for blanket tariffs of 15% to 20% on all other countries not yet targeted, calling the tariffs “very well-received” and pointing to the market’s earlier high as proof.
Trump hits Canada, investors watch the EU next
Thursday had been a good day for stocks. The S&P 500 rose 0.3% and the Nasdaq added 0.1% despite an announcement that the US would slap a 50% tariff on imported copper, as well as another 50% on goods from Brazil.
Traders had shrugged off the impact, but Friday brought a sharp turnaround. The Dow was headed for a 1% loss on the week, and the S&P was down 0.2%. Only the Nasdaq managed to stay in the green.
All eyes are now on what Trump will say, or do, about the European Union. Investors had expected an update this week, but there was no letter, just rumors. Whether he plans to increase tariffs or announce some kind of deal, nobody knows. What’s clear is that markets no longer take tariff noise at face value. They’re watching for action.
Unlike April’s major selloff when Trump first announced his sweeping levies, this week’s escalation hasn’t caused the same panic. Analysts at Barclays noted in a Friday memo, “stocks continued to melt-up, VIX went lower and gold prices declined,” adding that investors have become “de-sensitive to tariff threats.” Still, the note warned that this doesn’t mean equities are safe from future shocks.
Earnings season kicks off next week, along with new inflation reports. These could shake investor confidence, especially if Trump ramps up more trade fights. The market’s calm may not last much longer.
Bonds crumble, Powell exits, and volatility collapses
Meanwhile, the bond market is flashing serious warning signs. The 10-year Treasury yield climbed back above 4.40%, getting close to its April 10th high. Despite all the trade news and even some record stock gains, yields are rising fast. Fiscal policy concerns and growing deficits are to blame. Investors looking for lower rates won’t get them unless that changes.
At the same time, Jerome Powell is stepping down as Federal Reserve Chair, according to Billy Pulte. That adds another layer of uncertainty. It’s unclear who will replace him or how markets will respond.
Volatility is also dropping fast. The S&P 500’s three-month realized volatility fell by 8.2 points on Thursday, the biggest one-day drop since 1987, based on figures from Tier1 Alpha. That’s the sharpest volatility cooldown in nearly four decades. The VIX, Wall Street’s fear gauge, also dropped hard, 74% since peaking on April 8, now sitting at 15.7, the lowest level since February 2025.
Despite this massive cooldown, Wall Street has been climbing. Since April, the S&P 500 is up 28%, and bullish sentiment hasn’t let go. But Wolfe Research says the party might not last. “Our view is that the economy is in a later cycle environment and there’s a scarcity of secular growth in the market,” the firm told clients in a Friday note. They expect investors will keep overpaying for growth until there’s a clear economic rebound, possibly late 2025 or early 2026.
Wolfe also noted that the only companies forecast to grow revenues by more than 10% this year are mostly in tech and communication services. So the rally is narrow, and the broader market may be more fragile than it looks.
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