Quick overview

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President Donald Trump warned of a significant increase in tariffs on Chinese goods, causing stocks on Wall Street to decline and raising concerns about the potential escalation of a trade war.

This increase in tensions between the world’s two largest economies coincided with fears of a bubble forming in the artificial intelligence sector, which has driven the recent bull market. As a result of Trump’s comments, the S&P 500 dropped by more than 1%. Investors sought safety in gold and bonds. Despite experiencing its strongest week since November, the dollar weakened, and oil prices also fell.

Trump claimed that recent “hostile” export restrictions gave him “no reason” to meet with Chinese President Xi Jinping. Ahead of his scheduled meeting with Xi in Asia later this month, he posted on social media following a series of actions taken by the US and China to potentially disrupt the flow of materials and technology between the two nations.

The S&P 500 has soared since the tariff-related meltdown in April, driven by optimism about artificial intelligence and expectations of rate cuts from the Federal Reserve. With the index at one of its highest valuations in 25 years, there is little room for bad news.

Calls for a pause in the equity rally are increasing, even as trade tensions surge, as the S&P 500 has doubled in the past three years.

There are “flashing yellow lights” warning investors to slow down as the market nears its third anniversary of rebounding from the October 2022 lows. The market’s optimism has been so intense that investors are flocking to stocks, bonds, and cryptocurrencies.