Trump’s latest trade threat looms over Wall Street as investors celebrate stock market’s return to record territory

Major equity indexes including the S&P 500 tallied their first record closing highs in months on Friday — but something happened on the way to the closing bell that left a bad taste in some traders’ mouths.

Just a couple of hours before trading was set to conclude for the week, President Trump surprised investors with a Truth Social post that briefly sent stocks skittering into the red.

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• Trump’s latest trade threat looms over Wall Street as investors celebrate stock market’s return to record territory

The president announced that the U.S. would immediately end all trade talks with Canada in retaliation for Ottawa imposing a digital-services tax on American technology giants.

“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately. We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period,” Trump said in the post.

Although it may have been incidental, the timing of the post didn’t sit well with some on Wall Street. Even though stocks had shaken off most of the losses by the closing bell, some investors couldn’t help but wonder whether the market’s remarkable comeback rally might have emboldened Trump to once again take a more aggressive tack on trade.

If that was in fact the case, it could go a long way toward undoing much of the progress that has been made in markets over the past couple of months.

Trump blamed turmoil in financial markets for his decision to walk back many of his most troublesome ”liberation day” tariffs in April after the S&P 500 tumbled right to the edge of bear-market territory, while ructions in the bond market stoked widespread alarm.

Ultimately, the decision to hit the pause button helped inspire the concept of the “TACO” trade. In this case, TACO stands for “Trump Always Chickens Out.”

See: The ‘Trump always chickens out’ trade is the talk of Wall Street. Here’s one way to play it.

But now that things have calmed down, could the TACO trade return — but this time, in reverse?

“If you think about it, he shifted when the market fell,” said George Cipolloni, a veteran portfolio manager, during a phone interview with MarketWatch Friday afternoon. “He probably feels like he has a bit of wiggle room because the stock market has done so well over the past couple of months.”

It isn’t just markets. Cipolloni also pointed out that inflation has remained relatively tame since Trump imposed the first tariffs of his second term earlier this year, defying the expectations of many economists.

That price pressures have yet to significantly surface in the data could also encourage Trump to consider taking a hard line on tariffs as he seeks political victories he can bring home to his base. Additional tariff revenue, in theory, could help offset the budgetary impact of his signature budget plan to extend tax cuts passed during his first term in office — unless parts of the economy, like farmers, require another round of significant federal bailouts due in part to tariffs.

To be sure, the latest official economic data released this week included some signs of weakness that investors might want to consider, according to Mike O’Rourke, chief market strategist with Jones Trading.

Revised first-quarter GDP, released earlier in the week, showed the economy contracted by more than previously believed between the beginning of January and the end of March.

Then on Friday, new data showed personal spending declined in May for the first time in four months, while a reading on core inflation came in slightly hotter than expected. Although the inflation reading didn’t exactly move the needle, Federal Reserve Chair Jerome Powell did say during congressional testimony earlier in the week that he expected tariffs to start to show up in the inflation data some time this summer.

So far, investors have been mostly happy to tune out the constant noise regarding the administration’s trade agenda as the Trump team pursued its goal of “90 trade deals in 90 days” as first touted back in April, O’Rourke said.

In late May, Trump announced plans to slap a 50% tariff on E.U. imports, before quickly backing down after European leaders promised to speed up talks. Pain for stocks during that episode was pretty short-lived.

On Friday, Commerce Secretary Howard Lutnick said during an interview that the U.S. and China had completed an accord negotiated last month in Geneva, and added that deals with 10 major trading partners would be announced imminently.

Investors will be keeping a close eye on how things go with Canada, and a deal with the E.U. remains top of mind as well, O’Rourke said. Given Trump’s unpredictable nature, it is impossible to say with certainty what might happen next.

O’Rourke thinks there is almost no chance that Trump will allow the “liberation day” levies to return. Indeed, Trump himself said earlier that he might not stick to the deadline.

But with so much about Trump’s trade agenda still up in the air, investors may want to consider taking some chips off the table.

“It’s very easy for the tariff situation to come back into play, and this could be the first shot across the bow here,” O’Rourke said about Trump’s decision to end talks with Canada. “The way investors have to look at this is: Do you want to roll the dice here?”

The S&P 500 SPX gained 32.05 points, or 0.5%, to finish at 6,173.07 on Friday — a record close, and the index’s first since Feb. 19, Dow Jones Market Data showed.

The Nasdaq Composite COMP rose by 105.55 points, or 0.5%, to 20,273.46, its own first record close since Dec. 16. The Dow Jones Industrial Average DJIA also finished higher, although it remained shy of record territory.

The trade truce between the U.S. and China, strong consumer-confidence data from the University of Michigan, and investors’ positive reaction to earnings from Nike Inc. NKE were just some of the factors that helped push stocks higher on Friday, according to Farzin Azarm, a managing director at Mizuho Securities USA.

Reports about a coming U.S.-E.U. trade deal and an administration plan to boost energy availability for the purpose of powering the expansion of artificial-intelligence technology also helped, Azarm noted.

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