Stocks are now in danger of a serious sell-off.
The Trump administration is currently negotiating its single most important trade deal with China. The President and his team have been able to sign deals with a number of other countries already, but trade between China and the U.S. is THE issue as far as global trade is concerned. Exports/imports between the two nations are ~$700 billion per year.
The problem with all of this is that the Trade War has revealed the Trump administration’s “Achilles heel” to China… namely that the President Trump cannot stomach a stock market decline.
Let’s wind the clocks back to April.
The Trump administration announced global tariffs against every major trade partner (including China) on April 2nd. This triggered a stock market meltdown with the S&P 500 dropping 18% in a matter of weeks, erasing $11 trillion in capital.
The collapse was so dramatic that it actually resulted in a pullback in consumer spending with numerous companies including Southwest Airlines, Chipotle, PepsiCo and even Walmart noting that consumer spending was falling off a cliff in ways not seen since the pandemic!
THIS, not trade-related issues, was what forced the President to introduce his “90 day pause” to the Trade War on April 9th. By doing this, the President stopped the bloodbath, leading stocks to bottom and begin rallying shortly thereafter.
Since that time, the President has responded to every stock market pullback by announcing some “breakthrough” or “great deal” in trade to get stocks ripping higher again. He’s literally broadcast his greatest weakness to China.
This has led to what investors call the “Taco Trade” or “Trump Always Chickens Out” meme. The most recent example of this occurred just last week when the President threatened China with additional tariffs of 100% on Friday, only to turn around by Monday and suggest that he will still meet with China’s President Xi and that he’s hopeful a deal can be made.
What changed between Friday and Monday?
The S&P 500 fell almost 3% on Friday and the futures session looking like a bloodbath over the weekend.
So again, the Trade War has revealed the Trump administration’s “Achilles heel” to China. The President CANNOT handle a stock market decline. And with the China/ US Trade Deal deadline just a few weeks away on November 1st what are the odds that China is going to exploit this weakness to get the best possible deal for itself?
Which means…
The door is open to a serious stock market decline in the next few weeks. Stocks have already proven susceptible to a bloodbath based on a Trump social media post… how will they react if China announces something MAJOR related to a standoff as far as trade is concerned?
Could this trigger a stock market crash?