Investors are currently navigating a turbulent stock market as US-China trade tensions resurface, creating a wave of uncertainty among traders. On Tuesday, the stock market exhibited mixed results amid high volatility. The Dow Jones Industrial Average managed to gain 203 points, or 0.44%, after experiencing a significant decrease of up to 615 points earlier in the day. Conversely, the S&P 500 saw a slight decline of 0.16%, while the tech-heavy Nasdaq composite fell 0.72%, after plummeting as much as 2.1% at one point during the session.
This renewed conflict between the two largest economies in the world is marked by a series of retaliatory measures, escalating fears of a potential trade war that could impact global markets. The volatility in the stock market can largely be attributed to the investor sentiment surrounding the renewed tensions, particularly affecting technology and semiconductor stocks.
Market analysts had previously suggested that the worst of the trade conflict might be behind us. However, Lee Hardman, a senior currency analyst at MUFG, expressed that investor hope may have been premature as trade tensions intensified again following China’s announcement of new export controls on rare earth elements on October 9, coinciding with President Trump’s threat of a new 100% tariff.
In a quick retort, Beijing imposed sanctions on five American subsidiaries of South Korean shipping giant Hanwha Ocean, and began reviewing a US government trade investigation related to China’s maritime sector. Trump labeled China’s actions as an “Economically Hostile Act,” specifically criticizing their lack of soybean imports from the U.S., which has adversely affected American farmers in that market sector.
The resurgence of a US-China trade war raises concerns about igniting inflation and increasing the risk of an economic downturn. Sam Stovall, chief investment strategist at CFRA Research, emphasized that with the trade conflict back in focus, investors have valid reasons to be worried.
This turmoil occurs just ahead of a significant meeting scheduled between Trump and Chinese leader Xi Jinping at the upcoming APEC summit in South Korea at the end of October. Such geopolitical events are likely influencing market feelings, as evidenced by Wall Street’s fear index, the VIX, which surged by 31% on Friday—its largest single-day increase since April—before dipping 12% on the following Monday. The VIX registered a further 9% increase on Tuesday, highlighting the growing uncertainty among investors.
Tech stocks, which have largely driven the market’s rally in recent months, are particularly vulnerable to the pressures of trade disruption. The burgeoning AI industry, heavily reliant on sales to the Chinese market, faces potential setbacks. Nvidia, the market’s most valuable company based on S&P 500 metrics, saw its shares drop by 4.4% on Tuesday, illustrating the vulnerability of tech firms amid ongoing trade negotiations.
Ulrike Hoffmann-Burchardi, the global head of equities at UBS, noted that both the technology and chip sectors could experience short-term volatility as discussions continue. Conversely, traditional safe-haven assets like gold and silver are witnessing a surge, indicating that investors are increasingly hedging against escalating geopolitical instability.
Despite the recent downturn, the S&P 500 has enjoyed a remarkable rally of 33% over the past six months, bolstered by robust corporate earnings and anticipated rate cuts by the Federal Reserve. Although stocks have fluctuated in light of trade concerns, some investors are seizing the opportunity to buy the dip, providing a measure of support to the market.
Hoffmann-Burchardi remains cautiously optimistic, suggesting that a negotiated resolution between the US and China may still be on the horizon, providing hope for a sustainable rebound in market stability.
