US Stock Rally Sputters As Trump Ends Canada Talks: Markets Wrap

Wall Street traders weighing a flurry of tariff headlines saw gains in stocks waning as President Donald Trump said he was ending all trade discussions with Canada, fueling uncertainties about progress in negotiations with America’s top commercial partners. The loonie slipped.

The S&P 500 was little changed after an advance that earlier approached 1%. The equity benchmark hovered near its February closing record of 6,144.15. Trump threatened to impose a fresh tariff rate within the next week on Canada, with the country moving to implement a digital services tax. Bonds wavered after a solid rally in the past few days. The US dollar rose.

An earlier rally in stocks was in part driven by Trump’s remarks that the US had made trade deals with “probably four or five different countries,” naming agreements with China and the UK. That’s even as he hardened his threat to raise tariffs on certain countries by the July 9 deadline.

“There’s the upcoming deadline, when the current reciprocal tariff truce is due to expire. Unless it’s extended — or replaced by something more concrete — we could be in for another wave of trade tensions,” said Fawad Razaqzada at City Index and Forex.com.

Trump in April put tariffs on dozens of American trading partners on pause for three months a week after declaring them, when markets panicked over the possibility they could trigger a global recession. Since then, the fast equity rebound has defied Wall Street expectations, underscoring investor conviction that the economy is withstanding policy uncertainty.

Treasury Secretary Scott Bessent signaled there may be some extensions to wrap up major pacts by Labor Day. European Commission President Ursula von der Leyen told EU leaders behind closed doors she was confident a deal could be reached before the deadline, according to people familiar with the matter. And China confirmed details of a trade framework with Washington.

On the economic front, consumer sentiment rose sharply in June to a four-month high and inflation expectations improved notably. Data also showed that while the core personal consumption expenditures price index rose slightly more than expected, the pace was seen as consistent with tame price pressures that will allow the Federal Reserve to resume its rate cuts later this year.

“A window of opportunity is more likely to open at one of the final three policy meetings of the year — in September, October or December — when the impact of tariff increases on inflation becomes clearer,’ said Gary Schlossberg at Wells Fargo Investment Institute.

Fed Chair Jerome Powell told lawmakers this week that he expects inflation to pick up in June, July and August as tariffs become increasingly reflected in consumer prices, though he added if that prediction fails to materialize, the US central bank could resume rate reductions sooner rather than later.

Money markets continued to project at least two Fed cuts by the end of this year. Wagers on a third reduction could gain momentum if next Thursday’s jobs report is weak.

To Bret Kenwell at eToro, the latest PCE reading showed that inflation is still not spiraling out of control. However, it did snap a three-month streak of lower year-over-year readings, while last month’s figures were revised higher.

“Today’s inflation report shouldn’t be enough to give markets a significant scare, but it probably dashes the slim hopes investors had for a July rate cut,” Kenwell said. “Further, it may give investors a bit of hesitation with stocks surging into record high territory as we near quarter-end.”

Kenwell says that stocks can do pretty well in a mild-inflationary environment.

“The key will be a reassuring earnings cycle and a strong consumer as we go into the second half of the year,” he noted.

Indeed, with earnings season just weeks away, stocks will get a major test. Wall Street sees profit growth of 2.8% year-over-year for the second quarter for the benchmark, according to data compiled by Bloomberg Intelligence. That would be the smallest jump in two years. The lackluster forecasts magnify concerns from some market watchers that valuations are stretched.

The risk of a speculative stock bubble is increasing as expectations of rate cuts draw massive investment flows, according to Bank of America Corp.’s Michael Hartnett. Already this year, $164 billion has flowed into US equities, on course for the third-largest annual inflow in history, he said, citing data from EPFR Global.