Just when you thought it was safe to move on from “Tariff Trauma”…it struck back! China enacted fresh restrictions on rare earth exports, and President Trump responded by threatening a “massive increase” in Chinese levies. Stocks tumbled, while safe haven assets caught a big bid.
Take a look at the MoneyShow Chart of the Day. It shows the intraday surge in the CBOE Volatility Index (^VIX) of more than 30% (!), plus the 2.7% selloff in the S&P 500 Index (^SPX), the drop of more than 5% in the iShares China Large-Cap ETF (FXI), and the rally of around 0.6% in gold.
Stocks Slide, Volatility Rockets Amid New Tariff Threats
Why was the reaction so harsh? For one thing, markets had come a LONG way in a SHORT time as I noted in my Friday morning MoneyShow Market Minute (before the news came out). For another, as Marta Norton of Empower Investments noted on this week’s MoneyMasters Podcast, valuations across multiple sectors had gotten stretched. When you have a ton of good news priced in, almost any negative headline can knock you for a loop.
But I think the BIGGEST factor is that “Liberation Day” seemed so long ago (as of last Thursday, anyway). The administration’s April 2 announcements caused the S&P to plunge 10% in just three days.
Then as the president started backing down, deals started getting signed, and investors started getting used to the “more bark, less bite” nature of the announcements, stocks rallied. Then they rallied some more. Then they kept on rallying. The whole episode started feeling like a bad dream. Again…until Friday.
Investors will probably spend the next several days re-adjusting portfolios to account for the resumption of tariff-driven volatility. After all, it’s unclear if Trump will still meet with Chinese leader Xi Jinping. That was expected to happen at a summit in South Korea in a couple of weeks.
So, as a trader, you can expect:
- VIX to stay somewhat elevated
- Stocks to resume their “trade off of headlines” pattern, and
- Precious metals to continue to attract buyers.
Or in simple terms…we're back to Tariff Trauma trading!
