Stock prices plummet following Trump's announcement of a 35% tariff on Canadian goods.
In a surprising turn of events, President Trump's announcement of a proposed 35% tariff on Canadian goods has caused some initial market jitters, but the stock market has shown a remarkable degree of resilience.
On Friday, Nvidia (NVDA) bucked the trend, gaining 1.9% and hitting a fresh intraday record, extending its gains. However, US equity markets opened lower, with indices on track to end the week flat or slightly down. The Dow Jones Industrial Average fell by 226 points, or 0.5%, on Friday, but the S&P 500 and Nasdaq managed to close at record highs the day before, despite the tariff threat.
The new tariffs may not apply to all Canadian goods, according to an administration official, which could potentially lessen the economic impact. Most bilateral trade is covered by the USMCA (NAFTA successor), which currently keeps trade flows largely duty-free.
The proposed tariff has caused a sharp uptick in volatility assumptions, reflecting heightened anxiety about trade relations and economic uncertainty. Analysts noted that investors have developed a degree of resilience to Trump’s tariff threats, but the rapid escalation against a major trade partner like Canada has still pressured sentiment.
Some investors are betting that Trump will negotiate and not implement the threatened tariffs on Canada. Ross Mayfield, an investment strategist at Baird, suggests that selling stocks or getting too defensive could put one on the wrong side of a market rally. Mohit Kumar, chief economist and strategist for Europe at Jefferies, believes that tariffs will cause near-term uncertainty and volatility, but have only a limited impact in the medium term.
Market gains have been driven by AI and tech stocks, according to Adam Turnquist, chief technical strategist at LPL Financial. Bitcoin, in particular, has surged, rising 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.
Looking ahead, the actual long-term economic impact will depend on whether USMCA protections hold and how both the US and Canada respond to any retaliatory measures. Sarah Bianchi, senior managing director at Evercore ISI, believes that the next actual moves on tariffs are likely to be up.
However, it is crucial not to dismiss Trump's latest statements regarding tariffs. Just five stocks have contributed over half of the S&P 500’s returns across the past month, making the market vulnerable to significant shifts. Stock futures dropped after Trump announced the tariff threat on Thursday night, indicating that the market remains sensitive to trade-related news.
In summary, while the tariff announcement caused immediate market jitters and a negative open for US equities, the actual long-term economic impact will depend on whether USMCA protections hold and how both the US and Canada respond to any retaliatory measures. Investors should continue to monitor trade relations closely and adjust their portfolios accordingly.
Amid the proposed tariff on Canadian goods, some investors are looking at business opportunities in sectors not affected or less affected by the tariffs, as they see potential for growth in the stock-market, particularly in tech and AI sectors. However, the ongoing trade-related uncertainties could lead to increased volatility in the finance market, emphasizing the need for investors to keep a close eye and make necessary adjustments to their portfolios.
