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Investing.com -- U.S. stocks ended lower on Friday, reversing gains from the previous session, as trade tensions intensified following U.S. President Donald Trump’s announcement of a 35% tariff on Canadian imports and warnings of broader levies on goods from more than 20 countries.
The Dow Jones Industrial Average fell 279.13 points, or 0.63%, to finish at 44,371.51. The S&P 500 slipped 0.33% to 6,259.75, while the Nasdaq Composite eased 0.22% to close at 20,585.53.
The pullback followed Thursday’s rally, which saw all three major indexes rise, with the S&P 500 hitting a new all-time high.
Still, the week ended in the red. The Dow dropped 1%, and the S&P 500 and Nasdaq posted modest weekly declines of 0.3% and 0.1%, respectively.
Markets had previously appeared resilient to the mounting trade rhetoric, including Trump’s call for higher tariffs on copper, pharmaceuticals, and semiconductors starting August 1. But the escalation appeared to weigh on sentiment heading into the weekend.
Looking ahead to this week, investors will turn their focus to the start of the corporate earnings season and key macro data.
June’s consumer price index, due Tuesday, is expected to show a 0.3% monthly increase, signaling a pickup in inflation. Retail sales data on Thursday will add to the picture.
Investors continue to hope for policy easing from the Federal Reserve, though policymakers have signaled concern that tariffs may add to inflation pressures, complicating the outlook for rate cuts.
“Market-based estimates continue to price in cuts this year, indicating inflation from tariffs will likely be less impactful than feared,” Wolfe Research strategists led by Chris Senyek said in a note.
“However, we continue to watch the key components as our biggest risk for the back half of 2025 is a reacceleration of core goods and services components (ex-housing), leading to the Fed keeping interest rates on hold,” they added.
Bank of America (BofA) strategists expect both headline and core CPI to rise 0.3% month-over-month in June, marking a clear acceleration. They attribute the pickup in core inflation to stronger price increases in core goods, discretionary services, and medical services.
On retail sales, they project 0.9% gains in both the ex-auto and control group categories.
“Tariffs might have contributed to the strength in retail spending in June,” BofA’s team, led by Antonio Gabriel, wrote.
Still, if the forecast holds, real consumer spending should remain solid. The strategists said they will monitor food services closely to gauge whether tariffs are starting to weigh on discretionary categories.
Q2 earnings season to kick off this week
The second-quarter earnings season kicks off this week and is expected to offer key insights into the effects of trade policy, U.S. consumer behavior, and corporate AI spending.
While strong Q1 results helped fuel market gains earlier this year, expectations for Q2 have moderated. Analysts now project S&P 500 earnings to rise 5.8% from a year earlier, a pullback from the 10.2% growth forecast as of April 1, according to LSEG IBES.
First-quarter earnings saw 78% of S&P 500 companies beating expectations, reversing a trend of declining beat rates over the previous three quarters, according to Ned Davis Research.
Big banks will set the tone in the coming days, with JPMorgan Chase (NYSE:JPM), Bank of America Corp (NYSE:BAC), and Goldman Sachs Group (NYSE:GS) among the major names reporting. Other closely watched companies include Netflix (NASDAQ:NFLX), Johnson & Johnson (NYSE:JNJ), and 3M Company (NYSE:MMM).
Barclays (LON:BARC) analyst Jason Goldberg expects Q2 earnings per share (EPS) at the median bank to rise 9% year-over-year and 5% from the previous quarter.
While growth slowed to around 4% in the first quarter, he sees second-quarter revenue growth in the 4–5% range.
Despite pressure from higher long-term interest rates, Goldberg also forecasts tangible book value to increase for the tenth time in the past eleven quarters.
He projects the median bank to deliver a return on assets (ROA) of 1.1%, a return on equity (ROE) of 11.5%, and a return on tangible common equity (ROTCE) of 14%.
Investors will be listening for management commentary on how firms are navigating an uncertain policy environment, particularly when it comes to capital allocation, hiring plans, and trade-related disruptions.
What analysts are saying about U.S. stocks
Morgan Stanley (NYSE:MS): "Equities have been resilient despite new tariff announcements. For stocks, potential trade-related risks would center more around China, the USMCA exemption and Section 232 tariffs vs. what’s recently been announced. The new tax bill is constructive for large cap indices as are strong EPS revisions."
RBC Capital Markets: "We are lifting our YE 2025 S&P 500 price target to 6,250, essentially taking our price target back to where it was in mid March."
"We have adjusted how we are thinking about the GDP backdrop for stocks. Previously, we baked in the idea that the S&P 500 tends to fall by 3.4% during years when GDP is in the 1.1-2% range. We’ve left that assumption intact today. But given the desire of investors to look past 2025 fundamentals and to focus on 2026, we are also now baking in the 8% gain that the index tends to see in the year prior to those that see GDP growth in the 1.1-2% range. Importantly, both RBC Economics and the street consensus expect GDP growth to be stuck in the 1.1-2% range in both 2025 and 2026.
Evercore ISI: "After a stretch of positive news on trade, geopolitics, fiscal – came last week’s round of Tariff letters. EVR ISI’s Policy Team sees the Weighted Tariff Rate rising from around 10% based on May and June collections to above 15%, and headed higher – likely to result in further EPS Estimate reductions even as investors are sanguine about potential EPS estimate cuts. The inverse correlation of Trade Uncertainty and SPX increases the odds of a near term pause in stocks’ rally, ahead of unfavorable Aug-Sept seasonality for stocks."
Barclays: "The threat of 30% US tariffs on the EU will put the TACO trade to test. A full blown trade war and deeper recession would likely send equities down double digit, as seen in the immediate aftermath of Liberation day. But we are not quite there yet, and we are sceptical tariffs will settle at the high levels lately threatened by Trump. We think his tolerance for equity and bond market stress is limited, which is likely to set some cap on the tariffs he will ultimately impose. If the situation de-escalates, we still see a case for EU equities to breakout in H2."
Goldman Sachs: "We raised our S&P 500 valuation and return forecasts. We expect the S&P 500 to rise by 10% to 6900 during the next 12 months, reflecting a P/E multiple on forward consensus earnings of 22x.
"We view earnings as the key source of uncertainty around our forecasts."