US markets closed deep in the red Friday after former President Donald Trump threatened to dramatically escalate tariffs on Chinese goods, reigniting fears of a renewed trade war between the world’s two biggest economies, reported CNN.
The Dow Jones Industrial Average sank 879 points, or 1.9%, while the S&P 500 slid 2.71% and the Nasdaq Composite plunged 3.56%. The S&P 500 and Nasdaq suffered their worst session since April, and the Dow had its steepest fall since May. FactSet estimated that the S&P 500’s decline erased roughly $1.56 trillion in market value in a single day.
According to CNN, the sharp market drop came after Trump posted on social media that he was considering a “massive increase” in tariffs on Chinese imports. He added, “There is no way that China should be allowed to hold the World ‘captive’” over rare earth exports.
His comments appeared to stem from frustration over China’s reported restrictions on rare earth exports and delays in implementing previous trade commitments, the report said. Trump also said he no longer saw a reason to meet with Chinese President Xi Jinping later this month at the Asia-Pacific Economic Cooperation summit in South Korea.
Stocks had been hovering near all-time highs, with investors largely focused on strong corporate earnings rather than trade tensions -- until Trump’s post hit. The shockwave sent Wall Street’s fear gauge, the CBOE Volatility Index, soaring 32%, its highest since June.
“That was clearly not something traders wanted to hear!” wrote Steve Sosnick, chief strategist at Interactive Brokers. “We’d become quite accustomed to relatively quiescent markets with an upward bias, so it was quite shocking to see stocks in a quick freefall.”
Technology shares -- especially those tied to artificial intelligence and semiconductors -- were among the hardest hit. Nvidia fell 4.95%, while Advanced Micro Devices dropped 7.78%. “The ramping up of tensions with China is the big story,” said Ross Mayfield, investment strategist at Baird. “It definitely caught markets off guard.”
Economists warned that richly valued tech names were already vulnerable. “When you have a shock like today with President Trump, they are going to get hit the most because they’re the most at risk to the economic outlook worsening or corporate earnings retreating due to a potential slowdown,” said José Torres, senior economist at Interactive Brokers.
Meanwhile, companies linked to rare earth production in the US rallied. MP Materials rose 8.37%, and USA Rare Earth climbed 4.96%, as investors bet on higher domestic demand for these critical minerals.
In the bond market, US Treasuries surged as investors sought safety. Yields on both 10-year and 30-year bonds fell, while gold gained 1.5% and silver advanced 1.2%. “Trump is sparking risk-off sentiments in markets after declaring the potential for massive tariff hikes on China,” Torres noted. “Investors are clamoring for safe haven holdings as a heavy increase in levies could weigh on the earnings picture and the economic outlook ahead.”
Oil prices also slid, with US crude tumbling 4.2% and Brent crude down 3.8%, both reaching their lowest levels since May. Earlier in the day, crude had already been pressured by reports of ceasefire progress between Israel and Hamas. Robert Yawger of Mizuho Securities said renewed trade tensions had amplified concerns about “a demand destruction event,” adding it looked like “a mini mirror image of what happened in April.”
CNN’s Fear and Greed Index slipped from “neutral” into “fear” territory for the first time since May, and all three major stock averages turned negative for the month.
“The sell-off has the potential to evolve into a larger correction, especially if the US-China trade truce is over,” said Michael O’Rourke, chief market strategist at JonesTrading. “Throughout the summer, greed has far outpaced fear in the US equity market, and the high level of complacency leaves investors vulnerable.”
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