Tariffs, trade war and selloff: what’s happening?

Tariffs, trade war and selloff: what’s happening?

Friday 10/10 global slump on threat of US tariffs: between trade war, rare earths and tech—rebound or further declines?

What happened on Friday, 10 October

On Friday global indices suffered their worst session since the April selloff: in the US, the S&P 500 closed at −2.7% (−182.6 pts), the Nasdaq at −3.6% and the Dow at −1.9%. It was among the 20 worst “point” declines ever for the S&P 500, and the worst since 4 April 2025. The trigger: the US President’s announcement of 100% tariffs on imports from China and new export restrictions on “critical” software, reigniting the trade war narrative.
The technology sector led the selling, with mega-caps wiping out hundreds of billions in market cap; pressure also extended to crypto and cyclicals sensitive to the global supply chain.

The role of “rare earths”

Beijing defended export controls on rare earths, key materials for high tech and defense, accusing Washington of tariff escalation; at the same time it left room for negotiation, which tempered immediate retaliatory responses. The risk of supply bottlenecks remains a driver of volatility for semiconductors, electric vehicles and renewables.

The April precedent (“Liberation Day”) and the parallels

At the beginning of April 2025, the announcement of across-the-board duties (“Liberation Day”) triggered two days of heavy capitulation and marked the worst daily drop of the year (−5.97% on 4 April), with a domino effect on Europe and Asia. The pattern is similar: policy shock → higher uncertainty → multiple compression for growth/AI names with value chains exposed to China.

What’s different today versus April?

• Valuations and concentration: in early October, indices were coming off new highs; leadership remains concentrated in tech/AI mega-caps, amplifying sensitivity to political shocks.
• Signs of negotiation: China’s response, for now, is more measured than in April, leaving room for tactical de-escalation.

What to expect next week: rebound or further decline?

Let’s cross-reference the size of the drop with historical base rates:

• Directional base rate: over short horizons the S&P 500 posts positive days slightly more than half the time (≈52%); statistically, after large declines the 5–10 day average tends to be mildly positive but with wide dispersion. Translation: a rebound is “slightly more likely than not,” but not guaranteed.
• Headline-risk factor: the outcome depends on US/China moves on tariffs/trade war and how the rare earths dossier evolves; a more conciliatory tone could trigger rapid short-covering, while new measures (or blacklists) would revive “sell-the-rip” dynamics.
• Technical/quantitative: heavy overweight in AI mega-caps and leverage in passive/derivative vehicles raises the risk of pro-cyclical flows on down days (CTA/vol-target). In rising-volatility regimes, declines tend to cluster.

Scenario estimate (qualitative, non-binding):

• 1-week tactical rebound: 50–60% if headlines soften and no new restrictions emerge;
• Another negative week: 35–45% if rhetoric hardens or fresh measures arrive;
• Start of a prolonged downturn (through year-end): a non-negligible risk, but dependent on a material escalation in tariffs/rare earths and a deterioration in earnings/liquidity.

These percentages are estimates based on historical frequencies and current news flow; they are not “point” forecasts and do not replace due diligence.

Operational suggestions (equities)

1. Risk management: raise some “tactical” cash and set exposure bands; use trailing stops and position sizing on high-beta names.
2. Volatility barbell:
• Growth/AI pole of quality (positive free cash flow, technological moat), favoring those less dependent on China in their supply chain;
• Defensive pole (large-cap healthcare, regulated utilities/infrastructure, quality dividend) as a drawdown shock absorber.
3. Policy-sensitive themes:
• Potential beneficiaries of reshoring and incentives (US semis, automation, defense);
• At risk if rare earths tighten (EVs and renewables with high exposure to critical inputs).
4. Geography and FX: diversify into markets with lower elasticity to trade war and consider FX hedges if the USD strengthens.
5. Tactical execution: if a rebound occurs, trim into resistance; if a new leg down unfolds, stage entries (DCA) at pre-set levels, avoiding binary market timing.

Where to look for opportunities (non-binding ideas)

• Quality at relative discount: leaders with pricing power and solid balance sheets punished by forced selling;
• Data/energy infrastructure for AI with indexed contracts and visible cash flows;
• Selective small/mid caps in niches not directly hit by tariffs/rare earths.

Note: in sector/thematic choices, integrate ESG drivers and regulatory visibility, which become crucial during policy shocks.

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Disclaimer
This text is for informational purposes only and does not constitute a solicitation to invest or personalized investment advice. Investment decisions should consider an investor’s objectives, time horizon, and risk profile. Past performance is not a guarantee of future results.