Stocks were brutalized Friday in a way we haven’t seen in ages. Everything except some downtrodden consumer packaged goods stocks, led by the resurgent PepsiCo , was slaughtered. The headwinds were enormous and came from disparate places. Bond yields came down huge, something that equity markets normally greet with tremendous relief and price-to-earning multiple expansion. Instead, we got multiple contraction and a flight from pretty much everything, including crypto, into Treasurys. Gold hung in, but these days nothing seems to correlate with gold — except the sun coming up. The cadence of Friday’s session was downright disastrous and incredibly depressing: an eerily up opening for most stocks, led by the data center group — the new safe and sounds? — only to be hit by an 18-wheeler of a post by President Donald Trump on Truth Social. The note rambled, it shocked, and, most importantly, it blew up what we thought was a U.S.-China detente that had simply been tested earlier in the week by Beijing’s tightening of export rules for rare earth minerals . There have been so many tests that we just presumed this is another needless sticking point that the Chinese might be willing to give up on when the trade talks start in earnest. But because of it, and its belligerent timing, coinciding with what looks to be a successful ending to the Israel-Hamas war orchestrated by the president, Trump had had enough. Time to walk away. This weekend, the Chinese urged more negotiation, but we don’t know if the China hawks in the Trump administration — led by the lately unseen Peter Navarro — are in ascendance, or whether the pragmatists — led by a very busy Treasury Secretary Scott Bessent and a momentarily obscured Commerce Secretary Howard Lutnick — are still in control. I can’t tell if Beijing’s mineral restrictions got Trump so steamed that he threatened to cancel a meeting with Chinese President Xi Jinping planned for later this month in a fit of pique, or if he senses that, at last, he has the cards, as he likes to say. The Chinese, he believes, need our market now more than ever. There’s been no improvement in their real economy despite a stock market that seems manipulated higher, a la 2016. Their winning stocks are out of sync with what makes the Chinese economy tick, which is exports to the U.S. and Europe, both of which are slowing down, although the former much more than the latter. But judging from the slowdown in German car sales in China that we saw last week , you have to wonder whether Europe will start saying no to Chinese auto imports. If they have any preservation instincts, the Chinese could be even more stymied. Given that there’s been no fix of the myriad real estate issues that are at the heart of China’s $8 trillion problem , they are more vulnerable than we think. Sure, they have an ascendant semiconductor industry, but the president himself buys into the theme that everything should be built on Nvidia’s
