By Sabrina Escobar | Friday, July 11

Record Scratch. Tariff fears finally caught up to stocks, snuffing out the S&P 500's and Nasdaq Composite's record-breaking streak. 

All week, the White House has been sending out letters to trading partners with newly set tariff rates, which range as high as 50%. Markets largely shrugged them off and two of the three major indexes hit new highs.

But threatening Canada, one of the U.S.'s closest trade partners, with a 35% tariff rate seems to be one step too far. Investors also weren't loving President Donald Trump's late Thursday announcement that countries that hadn't received any letters could face tariff rates of 15% to 20%, a higher rate than the current 10% benchmark on goods. 

The Nasdaq shed 0.2% on Friday, the Dow Jones Industrial Average was off 0.6%, and the S&P 500 closed 0.3% lower, with 390 of the benchmark index's stocks closing in the red. All three indexes closed the week in negative territory, snapping a three-week winning streak for the Nasdaq and the Dow, and a two-week winning streak for the S&P. 

To be sure, the slide is nowhere near as bad as it was earlier this year, when Trump first unveiled his so-called reciprocal tariffs. The new levies' on-again, off-again nature have made many investors skeptical about taking each announcement at face value, betting that the president will walk back his most drastic announcements.

But as Friday's pullback suggests, even counting on the TACO trade (Trump Always Chickens Out) doesn't completely insulate investors from some degree of tariff-related market volatility. Fluctuations are likely to continue until deals get finalized -- something trade experts say will take a while. 

The upside in all of this is that equities have proven time and again their ability to bounce back from the tariff drama. Second-quarter earnings season, which starts next week, may prove pivotal toward determining whether the current rally can pick up steam again. 

Mark Hackett, chief market strategist at Nationwide, writes:

While bulls and bears may debate the rally's sustainability, the recent steadying of earnings estimates suggests that the Q2 earnings season could serve as the ultimate factor in determining whether the rally can extend its gains or transition into a more protracted, choppy consolidation phase.

What is clear, however, is that bears are on their heels and are hesitant following a barrage of whipsaws this year.

The slew of economic data releases scheduled to be released next week, including June's inflation and retail sales reports, could also help fuel -- or cool -- the market's rally. 

A two-day weekend hardly seems like enough time to prepare. 

DJIA: -0.63% to 44,371.51
S&P 500: -0.33% to 6,259.75
Nasdaq: -0.22% to 20,585.53

The Hot Stock: Halliburton +4.2%
The Biggest Loser: PayPal Holdings -5.7%

Best Sector: Energy +0.5%
Worst Sector: Financials -1%