Rekindling of Tariff Fight Pressures Wall Street’s Hottest Trades
Tech rout sends S&P 500 to worst day since April market turmoil
Investors are taking a harder look at some of the market’s hottest investments than at any time since “Liberation Day.”
Friday’s market slide—fueled by President Trump’s new threat of “massive” tariffs on goods from China—wasn’t huge by historical standards. But its breadth and its focus on red-hot tech shares and smaller banks rattled some analysts and portfolio managers, who had come to believe that the 2025 market advance had grown immune to trade-war tensions.
The selloff leaves investors in an uncomfortable place. The biggest gainers, such as Nvidia or Robinhood, continue to have healthy businesses. Many expect tax cuts, strong earnings and falling interest rates to boost companies and consumers.
But the size of the pullback suggests that some fear tech remains vulnerable to changes in political tides, while selling in banks shows latent fears that the economy is weak enough that a rekindled trade fight with China could still mean recession.
Stocks were headed for records again early Friday before Trump’s midmorning Truth Social social post, a response to China’s announcement of new export restrictions on rare earths, which are critical components of semiconductors, electric vehicles and jet fighters.
That sent the S&P 500 to its worst day since April’s tariff-fueled market chaos, with the broad index surrendering all of its gains for the week and then some. Economic worries dragged down prices for copper and oil. The CBOE Volatility Index, known as Wall Street’s “fear gauge,” climbed around 30%, raising fears that a surge in market swings could reveal weakness masked by months of calm.
After months of markets powering through the White House’s tariff threats, investors sitting on huge gains and expensive stocks began taking the trade war seriously again.
“This isn’t the first time we’ve seen a bump in the road since April, but this seems like a significant one. Like one that could knock the wheels off,” said Art Hogan, chief market strategist at B. Riley Wealth Management.
The moves disrupted a hot run for markets. The S&P 500 has climbed around 32% since the April lows, hitting more than 30 new all-time highs. As recently as Friday morning, many investors were more concerned about a FOMO-fueled market bubble than another tariff selloff.
Instead, traders ended the week selling many of the year’s biggest winners, highlighting how big gains and high valuations can leave prices vulnerable when conditions shift.
Tech was particularly hard hit, with the S&P 500 information technology sector tumbling 4%, eroding part of its staggering 45% gain over the past six months. Highflying chip stocks such as Super Micro Computer, Synopsys and Microchip Technology were among the S&P 500’s worst performers on Friday.
“This step up in tensions has created a white knuckle moment for the markets with tech stocks under major pressure,” Wedbush Securities analyst Dan Ives wrote to clients on Friday.
Chips are on the front line of the trade war, but hardly the only vulnerable sector. Regional banks also slumped, with investors betting that without the big trading businesses that help Wall Street firms profit off market volatility, they could be more exposed to any economic fallout of the trade dispute. Similar worries helped drive down shares of FedEx, which fell 5.2%, and sent oil prices to some of their lowest levels since May, below $59 a barrel.
But Trump’s threat also hit shares of all kinds of trade-sensitive companies, such as automakers, clothing manufacturers and even health and beauty firms.
Some investors fear that markets are particularly vulnerable to disruption now, when the extended rally has stretched corporate valuations, making the biggest stocks historically expensive. Investors now are paying more than ever for each dollar of revenue the S&P 500’s members produce.
Meanwhile, gains in so-called meme stocks began to proliferate this summer in a way they haven’t since the zero-interest-rate days of 2021—a sign of mass exuberance that many Wall Street pros find concerning. Real estate platform Opendoor Technologies and bitcoin-related data-center developer Cipher Mining—recent favorites among the day trading, social-media crowd—have both posted monster rallies with little apparent tie to business fundamentals.
There are plenty of reasons to believe the gains stand on a firm foundation. Corporate earnings growth has been strong and is projected to get even stronger. Wall Street analysts expect 16% earnings growth for S&P 500 companies over the next year.
Tech stocks and speculation in artificial intelligence have been a key driver of market gains, but the rally has broadened to other sectors as well. Industrial shares are up 14% for the year, while financial companies have gained 8%.
Meanwhile, consumer staples, a stable of companies with stable earnings growth and little fanfare that investors often favor during recessions, is the only S&P 500 group that is in the red for the past six months.
Stocks have rebounded quickly from market slides in recent years. And indexes could get a fresh boost when banks report what many expect to be robust profits when earnings season kicks off this coming week.
But for now, with a trade war back, investors are considering that the best-case economic scenario they have priced into stock valuations might not be the only scenario on the horizon.
“Bull markets don’t die of old age, they die of fright. And they are most afraid of recession,” said Sam Stovall, chief investment strategist at CFRA Research.