The stock market on Friday slumped to their worst week since late May. The decline was primarily driven by a sharp sell off on Friday, triggered by the resurgence of trade war concerns. Heading into Friday, the S&P 500 was actually positive for the week and was fresh off another record close, achieved on Wednesday. However, on Friday, Donald Trump accused China of “hostile” export controls on rare earths and said the U.S. would impose an additional 100% tariff on products from China.
This was on the back of the lack of jobs report last Friday due to the shutdown. The US Labor Department’s September employment report, whose scheduled release on Oct. 3, was expected to show a 54,000 increase. In the absence of a report from the US Labor Dept, the Carlyle Group, which conducts its own estimates of US GDP, consumer spending and inflation published a report stating that just 17,000 jobs were created in September, among the weakest results since the US economy emerged from the 2020 recession.
For the week, the S&P slid 2.4%, while the Nasdaq retreated 2.5%. The Dow cratered 2.7%.
Future Wealth’s View
In our report last week, we had stated – “Only time will tell when Wall Street will begin to face the reality of a weakening economy”. Although the stock market sold off on Trump’s tariffs against China, a sell off has been simmering in the market for a while. Random tariff statements by Trump has always been shrugged off by the market previously under the premise that Trump Always Chickens Out (TACO) and everything will be back to where it was. The reason that it was different this time is because negative economic data has been piling up and Wall Street has chosen to ignore until the “100% additional tariff on China” became the straw that broke the camel’s back.
Another sign that investors are queasy about the stock market is the rise in price of gold. Gold was simply seen as a safe haven against the stock market but was rarely seen as a hedge against the dollar. With money flowing into gold instead of US treasury bonds, it appears that investors are clearly concerned about the mounting deficits, the rising inflation and the currency devaluation.
After a phenomenal run since April, the market is on edge. That is not surprising and does not necessarily indicate to us that the bull market is over. But, trying to squeeze out every bit of gain out of the market without paying attention to the realities of weakening economic data could be a fool’s errand.