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Today is Friday, and just like every other day this week, there is tariff news to report. Today's tariff news, though, has been a little more halting for the market than the prior tariff news. The reason being is that it involves some of the largest trading partners for the U.S.
The largest trading partner as a bloc—the EU—will be receiving a tariff letter, and Canada, the third largest trading partner, will face a 35% tariff rate on August 1 for goods and services not covered under USMCA terms. This is what President Trump told NBC News, and he also added that most trading partners will pay a 15% or 20% tariff rate.
Ostensibly, this is bad news. The good news is that the market's reaction to it has remained relatively calm.
The S&P 500 futures are down 34 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 105 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 268 points and are trading 0.6% below fair value.
The fallout hasn't been more pronounced because the market still continues to view all of this as a point of negotiating leverage. The same holds true for the inflation-sensitive Treasury market. The 2-yr note yield is up just two basis points to 3.89%, and the 10-yr note yield is up just three basis points to 4.38%.
Call that a respectful trade but not a fear-based trade.
Now, if these higher tariff rates stick after August 1, then the market might go into a stronger recalibration mode with respect to the growth outlook, but for now, it continues to show a good amount of tolerance for the thought that growth will be fine and inflation won't be a problem because of the tariffs.
That tolerance is grounded in the understanding that the hard data to this point have not corroborated any of the market's worst fears.
It is easy today to point fingers at the tariff news as the catalyst for the weakness. We won't dismiss that causality entirely, but we would also submit that there is some elemental profit taking involved after a big run. The S&P 500 and Nasdaq Composite both set new record highs yesterday.
Looking across the market-moving, mega-cap landscape, six of the seven "Magnificent 7" are lower in pre-market trading, including NVIDIA (NVDA), which is down 0.6% after rallying 89% (yes, 89%!) from its April 7 low. Amazon.com (AMZN), which is up 0.6%, is the only pre-market gainer.
The weakness in these stocks is pressuring the equity futures market, which, frankly, isn't under a lot of pressure given the tenor of today's tariff headlines.
