President Trump on Friday abruptly ended trade talks with Canada over its looming “egregious tax” on American tech firms – briefly throwing cold water on the sizzling stock market before it rallied to record highs.
The S&P 500 rose 0.5%, or 32 points, to close at an all-time high of 6,173.07. The Nasdaq also closed at record, gaining 105 points, or 0.5% to 20,273.46.
The Dow Jones Industrial Average climbed more than 400 points, or 1%.
The Nasdaq and S&P 500 had earlier surpassed record highs amid mounting hopes for interest rate cuts this year, easing global tensions and a resurgence of AI enthusiasm.
But investors quickly reversed course after Trump blasted key trading partner Canada in a post on Truth Social, his social media platform, at 1:44 p.m. ET.
“We have just been informed that Canada, a very difficult Country to TRADE with…has just announced that they are putting a Digital Services Tax on our American Technology Companies, which is a direct and blatant attack on our Country. They are obviously copying the European Union, which has done the same thing,” Trump wrote.
“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately.”
It’s a significant setback for investors who were hopeful for more trade deals, especially since Canada is such a large trade partner. US goods trade with the nation totaled $762 billion last year, according to the office of the US trade representative.
Canadian officials said this month they will not put the digital services tax – which could hit US firms like Amazon, Google and Meta – on pause despite strong blowback from the US.
Earlier on Friday, growing hopes of interest rate cuts in the second half of this year helped spur a market rally, as several Fed officials have joined the call over the past week to consider easing policy as soon as this fall – or even by July.
Trump has led the push for lower interest rates, lobbing insults at Federal Reserve Chair Jerome Powell – who he recently called a “very average mentally person” with a “low IQ” – as he pressures him to slash the target rate, currently at 4.25% to 4.5%.
Data released Friday showed the core personal consumption expenditures price index, the Fed’s preferred inflation gauge excluding volatile food and energy prices, rose more than expected last month to 2.7%.
That could be a signal that Trump’s tariffs are starting to hit prices, which could threaten the possibility of near-future rate cuts.
“While one month does not make a trend, if we were to see another few months of escalating inflation data, it could push the Federal Reserve to continue its rate cut pause into 2026,” Robert Ruggirello, chief investment officer at Brave Eagle Wealth Management, said in a note Friday.
A tentative ceasefire in the Israel-Iran conflict, as well as reports Friday that the EU is confident it can reach a tariff deal with the US before a July deadline, also helped stocks temporarily recover from their lows in April, when Trump revealed sweeping tariffs.
Meanwhile, chipmaker Micron on Wednesday reported upbeat earnings, thanks to growth in data center revenue, and Jensen Huang’s Nvidia, which acts as a bellwether for the AI industry, hit a fresh record on Thursday and regained its title as the world’s most valuable company.
Wedbush Securities analyst Dan Ives argued that both Nvidia and Microsoft will likely reach $4 trillion market caps this summer, as artificial intelligence continues to represent the biggest tech transformation in 40 years, he wrote in a note Friday.
Prior to Friday’s close, the S&P 500 has surged more than 23.5% and the Nasdaq about 32% since their recent lowest close on April 8, as panicked investors led a massive sell-off on fears that Trump’s tariffs could reheat inflation.
“It’s not surprising to see stocks back at record highs as April’s volatility was actually normal, and markets don’t only go up, especially after two strong years,” Ruggirello said.
“It’s clear that the market thinks the [Israel-Iran] conflict will remain contained, although that could change at anytime. While stocks are back at record highs, that does not mean that there won’t be volatility during the second half of 2025.”
