Worst day since April: Trump's threats against China sparked a stock market sell-off

U.S. stocks fell sharply on October 10 after U.S. President Donald Trump threatened to raise duties on goods from China. He accused Beijing of being "increasingly hostile" because of its restrictions on exports of rare earth metals, a key resource for America's technology and defense sectors.

The Dow Jones Industrial Average fell by 1.9% at the end of trading on October 10. The S&P 500 lost 2.7%, showing its biggest drop since April, and the Nasdaq Composite fell 3.6%. The CBOE VIX index, known as the Wall Street Fear Index, soared 32% to more than 21 points.

The most rapid decline was shown by shares of technology companies sensitive to the aggravation of trade relations with China. Nvidia shares lost 4.9%, AMD - 7.7%, and Tesla fell by 5%. In total, more than 420 stocks in the S&P 500 index fell in price on Friday, the worst since April, Bloomberg notes. At the same time, oil fell in price by more than 4% as investors grew concerned that higher duties could hurt demand. Prior to Trump's threats, stocks were showing strong growth, with the Nasdaq even setting a new intraday record, rising above 23,119 points.

Friday's drop wiped out the S&P 500's gains for the week, with the broad market index now down more than 2%. The Nasdaq and DJIA also ended the week down more than 2% and nearly 3% respectively.

Until now, investors have believed that the toughest duties have already been imposed and that companies will be able to digest them - this is what helped the S&P 500 index update records in recent months, despite worrisome labor market signals and extremely high stock valuations, Bloomberg writes. But the fragility of that optimism became apparent on Friday, as Trump's social media post threatening China instantly interrupted nearly two months of calm in the markets.

"I was supposed to meet with Chinese President Xi Jinping in two weeks at the APEC summit in South Korea, but now it doesn't seem to make sense," Trump said on Truth Social. - One of the Ma we are now considering is a significant increase in duties on Chinese goods coming into the United States."

Trump has accused China of "holding the world hostage" with its control over the rare earth metals market. Earlier this week, China tightened regulations in this area, requiring foreign companies to obtain a license to export goods containing rare earth elements.

The escalation of the conflict with China came amid the protracted shutdown of the U.S. federal government, which continues for the 10th day. On the eve, the Senate failed for the seventh time to pass either of two alternative bills to temporarily fund the government, which could have ended the shutdown. So far, there is no indication that Republicans and Democrats are any closer to a compromise, CNBC notes.

- "When everything is working properly, you should be wary of a blow out of nowhere," Greg Taylor, chief investment officer at PenderFund Capital Management, told Bloomberg. - The market was up substantially, everything was going to the upside. It ignored a lot of warning signs, and in my opinion, this risk was simply not built into the current asset price."

- "Friday's trading was a reminder of how emotion and uncertainty can move markets," Nationwide Funds Group chief strategist Mark Hackett told Bloomberg. "It's too early to say with certainty whether the announcements will lead to a new round of trade conflict between the U.S. and China or are just public negotiations. But investors appear to be taking a wait-and-see attitude."

- "We've been in a state where the market has little regard for macroeconomic risks, so an unexpected jump in yields, rising unemployment or external news like this could easily cause nervousness," said Piper Sandler chief investment strategist Michael Kantrowitz. - Trump hasn't made any direct changes yet, so he may be using this (threats to China - Oninvest) as a tactical move in negotiations rather than a specific statement that duties will rise to a certain level on a certain date."

- "It's not surprising that it's the tech sector that has sagged the most, as these companies have a significant dependence on China: both in manufacturing and as a major consumer," B. Riley Wealth chief market strategist Art Hogan told CNBC. Riley Wealth's Art Hogan. - Clearly, our relationship with the world's second largest economy has become much more complicated. The escalation of the conflict certainly gave investors a reason to take profits on Friday." The analyst emphasized that it is still hard to say when the parties will sit down at the negotiating table again, but it seems to be "definitely not a matter of the next few days."

- "The market has become perhaps too complacent - that's probably the appropriate word for this kind of news," said Siebert Financial Chief Investment Officer Mark Malek. - Even to negative news, it hasn't reacted as acutely as one might expect. But with no new data to make sense of, it was this news that gave traders a reason to take action".

- JPMorgan CEO Jamie Dimon told the BBC on October 9 that he is far more concerned than his peers about the prospect of a major correction in the stock market. "If the market is pricing in a 10% chance [of a correction], I would say it's more like 30%. I'm not saying it will happen as early as next year - these things are extremely difficult to predict," said the JPMorgan chief. He declined to give an exact timeline, but suggested it could happen within six months to two years. "The level of uncertainty I think is higher than usual," the banker added.

This article was AI-translated and verified by a human editor