Investors have moved into a post-tariff world
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The S&P 500 was on track to hit a new record on Friday, but then sank when President Trump announced the termination of trade talks with Canada over a controversial digital services tax.
- Within an hour, investors decided not to care, and stocks closed at an all-time high for the first time since February.
Why it matters: Wall Street is largely post-tariff. The market is a forward-looking machine, and it's already priced in better-than-expected trade deals before they are signed.
What they're saying: Headline-driven volatility is a given under this administration, so don't let it impact your portfolio, advisors say. (Example A: Canada scrapped the aforementioned tax Sunday night.)
- Jay Pelosky of TPW Advisors says he pays "no attention" to tariff policy anymore.
- Torsten Slok, chief economist at Apollo, indicated that Trump may be "outsmarting everyone" in a recent note, arguing any extension of the 90-day tariff pause, which Trump has signaled, would decrease uncertainty.
- Lower uncertainty is good news for both businesses and investors.
- Friday's action was "reflecting the improved investor sentiment and overall investor confidence," says Mike Dickson, head of research and quantitative strategies at Horizon Investments.
Zoom in: There are several bullish signals that strategists would rather focus on than tariffs, which fueled the 19% drop in stocks just a couple months ago.
- Expectations are building around the "big, beautiful bill" being passed sooner rather than later, which could be a fresh catalyst.
- Recent declines in the dollar may be a long-term risk, but for now, this could be a cushion that drives earnings beats across the big tech names.
- Treasury Secretary Scott Bessent continues to pitch an economic agenda built on a three-legged stool — tax, trade and deregulation — as investors salivate over the prospect of looser government oversight.
Reality check: Economists caution that a slowdown in consumer spending, which is already happening, could worsen as tariff-driven inflation takes full effect.
- It will be another couple of months until we know how much increased tariffs have affected inflation, according to Joe Brusuelas, principal and chief economist at RSM US.
- "It's summer silly season," says Brusuelas, who cautions investors that FOMO is driving positive sentiment while risks remain.
- He argues a reassessment of valuations will come when, not if, the data shows further tariff impacts.
The other side: Some hyper-optimistic strategists may argue a slowdown in consumer spending off the back of higher prices is bullish since there could be a subsequent rebound if trade deals are struck.
- Spending slowed when uncertainty was at a record high. If uncertainty wanes, maybe spending roars right back. The argument clashes directly with the idea that the inflation driven by tariffs is just beginning.
The bottom line: Consensus is building around the idea that investors can stomach headline volatility around policy uncertainty, but they can't afford to miss out on the rallies that come after.
