Selloff in the stock market: should you take the plunge?

As tariff-driven trade tensions resurface, a stock market selloff severely damaged US tech stocks and cryptocurrencies

On Friday, October 10, US President Donald Trump resurrected threats to impose punitive tariffs on China, which caused the stock market to plunge into a steep selloff.

Trump threatened to apply 100 percent tariffs on US imports from China and further controls on critical software in response to what he saw as unfair practices by his Chinese counterparts, particularly with regard to exports of strategically important rare earth metals.

A selloff in the stock market was triggered by this most recent tariff threat. As investors fled US stocks on October 10, the SandP 500, a gauge of the US stock market, dropped 2 points and 7 percent. Particularly hard-hit were risky assets like technology stocks, artificial intelligence (AI), and cryptocurrencies.

"The Nasdaq fell more than 3 percent, with tech stocks being the most affected due to their dependence on Chinese rare earths," said Victoria Scholar, Interactive Investor's head of investment.

The largest selloff in US stock markets since the height of the tariff disruption in April is represented by the decline in the S&P 500.

The cryptocurrency markets took the brunt of the stock market selloff, highlighting their higher volatility in comparison to equities.

According to Derren Nathan, head of equity research at Hargreaves Lansdown, "Traders rushed to close positions as Bitcoin bottomed out at one point, more than 13 percent below the all-time highs seen last week."

Is the stock market in the US collapsing?

Following warnings from figures like Jamie Dimon and the Bank of England that stock market valuations are dangerously overstretched, especially in the leading AI and technology stocks that stand to be hit if China and the US enter another trade spat, the most recent stock market selloff arrived.

There were growing concerns that the AI megacap bubble might burst even prior to Trump's most recent verbal spat with Beijing. The most recent events are also taking place against a backdrop of waning confidence in the once-dominant notion of US exceptionalism.

"China's move to apply broader export controls on rare earths is threatening an escalation of the trade war," stated Michael Pearce, deputy US economist at Oxford Economics, adding that "downside risks to the US economy are mounting."

According to Morningstar data, investors pulled £87 billion out of US equity funds in the four months ending August 31. This suggests that even though the US stock market has been hitting new all-time highs, many investors are growing increasingly concerned that the market may be about to crash.

Winners of the sell-off in the stock market.

While the stock market selloff has severely impacted the prices of US tech stocks and cryptocurrencies, other assets have benefited from the increased uncertainty.

Gold is at the forefront, and it has prospered in the ambiguity created by 2025 and the disruption caused by tariffs. On the morning of October 13th, the price of gold reached yet another record high of £4,079.8.

According to Scholar, "the flight to safety trade has continued to propel gold and silver." "More uncertainty is brought on by the US government shutdown, which increases demand for safety assets. There is a sense that a lot of investors who aren't sure where to put their money have joined the trend after seeing how much gold has appreciated," she continued.

In contrast, the FTSE 100 opened Monday morning up 0.1 percent after dropping about 0.9 percent on Friday due to Trump's tariff threat.

Are you buying the dip? Will TACO arrive?

When Trump eventually calmed global stock and bond markets by reversing some of the most severe tariffs he had announced, the acronym TACOwhich stands for Trump always chickens outrose to prominence in April.

This time, expectations that the TACO trade might be involved have grown very early. "Don't worry about China, it will all be fine! Highly respected President Xi just had a bad moment," Trump wrote on his Truth Social platform on Sunday, October 12. Neither he nor I want his nation to experience a depression. The U. A. A. intends to aid China rather than harm it.

The stock market selloff from Friday seems to have partially reversed as a result of the post. On the morning of Monday, October 13, S&P 500 Futures rallied as much as 1.7 percent.

Wedbush Securities' global head of technology research, Dan Ives, stated, "We think the bark will be way worse than the bite here." He also stated that "Trump and Chinese President Xi Jinping should meet in the coming weeks to discuss some of these topics and it is likely that the tariff threat overhang from November 1st will be removed in the end."

Several investors seem to be buying the dip because of this optimism, believing that the worst of the US-China rhetoric will soon be over.

"Traders may be betting on a similar pattern where a series of trade deals helped American indices enter a six-month period of nearly uninterrupted growth," Nathan said.