Flaring trade tensions between the United States and China sent shockwaves across markets Friday, hammering stocks, oil and crypto while spurring a dash for the perceived safety of Treasuries and

gold . President Donald Trump ’s threat of a “massive increase” in China tariffs shook Wall Street at the end of an already-volatile week that saw concern build about a bubble in

artificial-intelligence companies . His remarks sent the SP 500 down 2.7 per cent. The tech-heavy Nasdaq 100 lost 3.5 per cent. The dollar slid at the end of its best week this year. Crude plunged over four per cent.

Trump said he saw “no reason” to meet Chinese President Xi Jinping, citing recent “hostile” export controls. His social-media post followed a series of moves by both the U.S. and China to potentially curb flows of technology and materials between the countries — all ahead of the presidents’ planned meeting in Asia later this month.

“That was clearly not something traders wanted to hear. Things got ugly quickly,” said Steve Sosnick at Interactive Brokers in a note titled “Tariff Rug Pull.” “The reactions may say as much about recent market complacency as they do about the policy ramifications.”

Big downward moves in risky assets have been a rarity of late, which may itself be a factor in Friday’s jarring reaction.

Since the tariff-fuelled meltdown in April, the S&P 500 has surged on optimism about AI and hopes for U.S. Federal Reserve rate cuts. The gauge is trading near one of its highest valuations in 25 years — leaving a thin cushion for bad news.

“Throughout the summer, greed has far outpaced fear in the U.S. equity market, and the high level of complacency leaves investors vulnerable,” said Michael O’Rourke at Jonestrading. “The selloff has the potential to evolve into a larger correction, especially if the U.S.-China trade truce is over.”

Over 420 shares in the S&P 500 fell, with the gauge seeing its worst day since April. In another sign of stress, a key gauge of volatility – the VIX – hit 22. The yield on 10-year Treasuries sank eight basis points to 4.06 per cent. Bitcoin slid about four per cent. Commodities from copper to soybeans, wheat and cotton slumped.

Trump’s post follows a series of moves by both the U.S. and China to potentially curb flows of technology and materials between the countries — which had been seen as ways to gain an edge ahead of the presidents’ planned meeting in Asia.

“This is a very dangerous moment for global supply chains, including those powering AI, but it is important to note that neither side has yet implemented its threatened measures,” said Michael Hirson and Houze Song at 22V Research. “There is still a window to back down, and Trump faces significant political risks if he follows through on his threats.”

Chris Zaccarelli at Northlight Asset Management highlighted the importance of the trade relationship between the U.S. and China for market psychology.

“Good trading relations with China help keep markets calm, and a trade war with China would be extremely negative for markets,” he said.

To Michael Bailey at FBB Capital Partners, perhaps investors are using the new Trump tariff threats as cover for selling the AI complex, which has been “living on an island” this year, looking at earnings growth.

“In other words, tariffs have done very little to slow the breakneck pace of AI-related companies, so today’s new tariff concerns are a bit surprising,” he said.

From a technical standpoint, Dan Wantrobski at Janney Montgomery Scott says Friday’s pullback is not a complete surprise.

“We were anticipating air pockets of this or similar nature,” he noted, adding that would be “due to recent overbought conditions, negative divergences in price, momentum, and breadth, crowded positioning, and high headline risk.”

When staring down the face of a repricing such as this, Wantrobski says it is important to remember that in the history of the S&P 500, there was never a single instance where it declined more than 20 per cent twice in one calendar year over two separate occasions.

In addition, he noted that with the selloff, many short-term trading charts are being pressed into “moderately oversold” territory, which could signal potential bounces over the coming days.

“We continue to anticipate corrective activity in the magnitude of five to 10 per cent from the recent highs due to overbought chart conditions across multiple time frames,” Wantrobski said. “But our model is not calling for structural downturn in the U.S. equity cycle for 2025.”

Trade tensions escalated at a time when calls for a breather in the equity rally are growing, with the S&P 500 almost doubling in three years.

The market ebullience has been so pronounced that investors have recently flocked into everything from stocks to bonds and cryptocurrencies.

Global equity funds attracted US$20 billion in the week through Oct. 8, while US$25.6 billion flowed into bonds, Bank of America Corp. said, citing EPFR Global data. Crypto funds had inflows of US$5.5 billion. Even cash funds saw additions of almost US$73 billion, suggesting investors still have plenty of dry powder.

As traders rushed to the perceived safety of bonds, Treasuries rose across maturities.

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“Investors are clamouring for safe havens as a heavy levy increase could weigh on corporate earnings and the economic outlook,” said Jose Torres at Interactive Brokers. “Emblematic of slowdown fears is the yield curve plunging in bull-flattening fashion, led south by the longer tenors, while gold and silver advance strongly.”

“The bigger effect was the reversal of equities. Is this the start of a Liberation Day Two?” said Andrew Brenner at NatAlliance Securities. “But that gave the bond markets more of a bid.”

The tariff threat and the market reaction to it hearkened back to US financial-market behavior in April, when the Trump administration rolled out an agenda of sweeping levies that sent the stock market into a tailspin, stoking demand for Treasuries. The administration subsequently placed many of its plans on hold, and shares recovered.

The dollar dropped against most of its developed-market peers Friday, while climbing about 1% this week.