A monthslong calm in stock markets shattered Friday after U.S. President Donald Trump unleashed a string of bellicose threats against China in response to Beijing tightening its rare earth restrictions.
The S&P 500 sank 2.7% and the S&P/TSX Composite Index dropped 1.4% in their worst day since April. The Dow Jones Industrial lost 1.9%, and the Nasdaq composite fell 3.6%.
Stocks had been heading for a slight gain in the morning, until Trump took to his social media platform and said he’s considering “a massive increase of tariffs” on Chinese imports. He’s upset at restrictions China has placed on exports of its rare earths, which are materials that are critical for the manufacturing of everything from consumer electronics to jet engines.
He said there is no reason to meet with China’s President Xi Jinping in two weeks as planned, adding that there are “many other countermeasures” under consideration. After markets closed, Trump said the U.S. would impose a new tariff of 100% on imports from China, starting Nov. 1.
“The second largest economy and the first largest economy are arguing again, and we’re seeing a sell first, ask questions later mentality to end the week,” said Ryan Detrick, chief market strategist at Carson Group in Omaha. “President Trump’s post did truly come out of nowhere, which opened the door for some extreme volatility.”
“And it’s important to remember we haven’t had this level of volatility in a long time,” Detrick added. “One could argue we were due for some spookiness this October.”
The CBOE Volatility Index, viewed as a reflection of market anxiety, reached its highest closing level since June 19.
The ratchet higher in tensions between the world’s largest economies led to widespread drops across Wall Street, with roughly six out of every seven stocks within the S&P 500 falling. Nearly everything weakened, from Big Tech companies like Nvidia and Apple to stocks of smaller companies looking to get past uncertainty about tariffs and trade.
The market may have been primed for a slide. U.S. stocks were already facing criticism that their prices had shot too high following the S&P 500’s nearly relentless 35% run from a low in April.
All told, the S&P 500 fell 182.60 points to 6,552.51. The Dow Jones Industrial Average dropped 878.82 to 45,479.60, and the Nasdaq composite sank 820.20 to 22,204.43.
The S&P/TSX composite index ended down 414.09 points at 29,850.89, its lowest closing level since September 26. For the week, the index was down 2%.
The TSX has advanced 20.7% since the start of the year and posted a record closing high as recently as Monday.
The high-flying TSX technology sector dropped 4.3%, with shares of e-commerce company Shopify Inc dropping 8%.
The TSX energy sector was down 3.3%. Some of Friday’s strongest action was in the oil market, where the price of a barrel of benchmark U.S. crude sank 4.2% to US$58.90. It fell as a ceasefire between Israel and Hamas came into effect in Gaza. An end to the war could remove worries about disruptions to oil supplies, which had kept crude’s price higher than it otherwise would have been. Trump’s tariff threat could gum up global trade and lead the economy to burn less fuel.
In the bond market, the yield on the 10-year Treasury sank to 4.05% from 4.14% late Thursday. It had already been lower before Trump made his threats, as a report from the University of Michigan suggested that sentiment among U.S. consumers remains in the doldrums.
One potentially encouraging signal from the University of Michigan’s preliminary survey was that consumers’ expectations for inflation in the coming year edged down to 4.6% from 4.7% the month before. While that’s still high, the direction of change could help the Fed and limit upward pressure on inflation.
Domestically, Canada’s economy added 60,400 jobs in September, easily eclipsing forecasts of a 5,000 increase. The data released Friday led to investors reducing bets on a Bank of Canada interest rate cut this month.
Canadian bond yields followed U.S. yields lower. The decline in long-term borrowing costs helped the TSX utilities sector, which added 0.9%. Consumer staples, another defensive sector, was up 1.1%.
Aritzia Inc was a standout. The clothing retailer’s shares jumped 8.1% after the company’s quarterly results beat estimates.
U.S.-listed shares of Chinese companies dropped sharply, with heavyweights Alibaba Group Holding, JD.com Inc and PDD Holdings down between 5.3% and 8.5%. Qualcomm fell 7.3% after China’s market regulator said the country had launched an antitrust investigation into the semiconductor manufacturer over its acquisition of Israel’s Autotalks.
The U.S. government is currently in its 10th day of shutdown as a congressional impasse has so far yielded few signs of progress or serious negotiation. This has resulted in a data blackout, with official government economic indicators postponed for the time being.
In the absence of official data, investors looked to the U.S. Federal Reserve for clues regarding near-term interest rate cuts. Fed Governor Christopher Waller said that while private employment data continues to show labor market weakness, the central bank should act with caution when reducing the Fed funds target rate as it evaluates the economy. St. Louis Fed President Alberto Musalem echoed that sentiment, saying that another rate cut could be warranted as insurance against a weakening labor market. “I believe that we have to tread with caution” before monetary policy becomes too accommodative, he said.
A spate of large financial firms - including JPMorgan Chase , Goldman Sachs, Citigroup, and Wells Fargo - is set to release quarterly results on Tuesday, marking the unofficial launch of third-quarter earnings season.
Analysts currently expect third-quarter S&P 500 earnings growth of 8.8% year-on-year, on aggregate, compared with annual growth of 13.8% last quarter and 9.1% in Q3 2024, according to LSEG data.
Declining issues outnumbered advancers by a 4.36-to-1 ratio on the NYSE. There were 215 new highs and 167 new lows on the NYSE. On the Nasdaq, 799 stocks rose and 3,936 fell as declining issues outnumbered advancers by a 4.93-to-1 ratio. The S&P 500 posted 18 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 102 new highs and 145 new lows. Volume on U.S. exchanges was 24.26 billion shares, compared with the 20.15 billion average for the full session over the last 20 trading days.
What market pros are saying as stocks sink on Trump’s China comments
Reuters, The Associated Press, Globe staff