Canada talks show tariffs create new world for investors

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.

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