The stock market entered a sharp selloff on Friday 10 October as US president Donald Trump revived threats to slap punitive tariffs on China.
In response to what he perceived as unfair dealings from Chinese counterparts, especially regarding exports of strategically critical rare earth metals, Trump threatened to impose 100% tariffs on US imports from China along with additional controls on critical software.
This latest tariff threat prompted a stock market selloff. The S&P 500, a bellwether for the US stock market, fell 2.7% on 10 October as investors fled US stocks. Risk assets like artificial intelligence (AI) and technology stocks as well as cryptocurrencies (crypto) were particularly hard-hit.
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“The Nasdaq [plunged] over 3.5%, with tech stocks hit hardest because of their reliance on rare earths from China,” said Victoria Scholar, head of investment at Interactive Investor.
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The S&P 500’s drop marks the US stock market’s biggest selloff since the height of tariff disruption back in April.
Underscoring their greater volatility compared to equities, crypto markets bore the brunt of the stock market selloff.
“At one point, Bitcoin bottomed out over 13% lower than the all-time highs seen last week, as traders scrambled to close positions,” said Derren Nathan, head of equity research at Hargreaves Lansdown.
Is the US stock market crashing?
The latest stock market selloff followed hot on the heels of warnings from the likes of Jamie Dimon and the Bank of England that stock market valuations, particularly in the leading AI and technology stocks which stand to be hit if China and the US enter another trade spat, are dangerously overstretched.
Even before Trump’s latest war of words with Beijing, fears were mounting that the AI megacap bubble could burst. The latest developments are also playing out against a backdrop of diminishing faith in the previously dominant concept of US exceptionalism.
“Downside risks to the [US] economy are mounting,” said Michael Pearce, deputy US economist at Oxford Economics, “with China’s move to apply broader export controls on rare earths threatening an escalation of the trade war.”
Morningstar data shows investors withdrew $87 billion from US equity funds in the four months to 31 August, indicating that despite the US stock market reaching new all-time highs in the meantime, many investors are becoming wary that the US stock market could be about to crash.
The winners from the stock market selloff
While US tech stocks and crypto prices have been hit hard by the stock market selloff, other assets have gained on renewed uncertainty.
Front and centre is gold, which has thrived in the uncertainty that 2025 and the tariff disruption has caused. The price of gold hit another all-time high of $4,079.8 on the morning of 13 October.
“The flight to safety trade has continued to propel gold and silver,” said Scholar. “The US government shutdown provides further uncertainty, pushing up demand for safety assets.. There’s a feeling that many investors, unsure where to put their money, have been watching gold’s appreciation and have hopped on the bandwagon,” she added.
The FTSE 100, meanwhile, fell around 0.9% on Friday following Trump’s tariff threat, but opened 0.1% higher on Monday morning.
Buying the dip – is TACO coming?
April saw the rise of the ‘TACO’ acronym, standing for ‘Trump always chickens out’, when Trump eventually soothed global markets for stocks and bonds by rolling back on some of the most extreme tariffs that he had announced.
Hopes that the TACO trade could be coming into play have risen very early this time around. Trump posted on his Truth Social platform on Sunday 12 October: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”
The post appears to have sparked a partial reversal of Friday’s stock market selloff. S&P 500 Futures gained as much as 1.7% during the morning of Monday 13 October.
“We believe the bark will be way worse than [the] bite here,” said Dan Ives, global head of technology research at Wedbush Securities. “Trump and Xi [Jinping, president of China] should be meeting in the next few weeks to discuss some of these topics and likely the 1 November tariff threat overhang will ultimately be removed,” he added.
This optimism appears to be prompting many investors to ‘buy the dip’ on the basis that the worst of the rhetoric between the US and China will be promptly rowed back.
“Traders may be banking on a similar pattern where American indices entered a six-month period of almost unbroken growth helped by a string of trade deals,” said Nathan.
