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(Bloomberg) — Flaring trade tensions between the US 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 S&P 500 down about 2% – with the gauge set for its worst day since April. The dollar slid at the end of its best week this year. Crude plunged 4%.

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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 US 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.

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-fueled meltdown in April, the S&P 500 has surged on optimism for AI and hopes for Federal Reserve rate cuts. The gauge is trading at 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 US 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 US-China trade truce is over.”

About 400 shares in the S&P 500 fell. The yield on 10-year Treasuries slid nine basis points to 4.05%. The dollar slipped 0.2%.

Chris Zaccarelli at Northlight Asset Management highlighted the importance of the trade relationship between the US 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.

Bailey also notes that while earnings season kicks off next week, big tech companies only start reporting later.

“This information black hole for big tech could lead some investors to sell now and avoid some uncertainty over the next few weeks,” he said.

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.

“As the market approaches its third anniversary of this bull market off the October 2022 lows, we’re starting to see ‘flashing yellow lights’ advising investors to slow down,” said Craig Johnson at Piper Sandler.

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

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

Global stocks are set to advance further after their record-breaking run thanks to better-than-expected earnings in the third quarter, according to HSBC strategists. Alastair Pinder and Dmitriy Leskin.

The strategists don’t see AI in “bubble territory,” given the size of its potential market and the fact that valuations remain below dot-com levels. Lower interest rates and monetary easing by the Fed should encourage investors to put money into equities rather than money-market funds, they said.

While the S&P 500 wobbled a few days this week, the gauge has already seen five record closes, taking the year-to-date total to 33, according to Bespoke Investment Group. If 2025 were to end today, 33 record highs in a year isn’t particularly noteworthy as it ranks tied for the 19th most since 1954.

“What’s been more impressive is that the 33 record closes followed last year’s total of 57,” Bespoke said. “With 90 record closing highs in the last two calendar years, there have only been five other two-year stretches when the S&P 500 had more record closing highs, and not to jinx anything, but there’s a legitimate chance that by the end of the year, the last two years could end up ranking well into the top five.”

“What should catch investors’ attention this week is the market’s progression despite this uncertainty: prices are advancing beyond the limits of asset carry, one of many signs that the market has decided to ignore the ambient uncertainty and now seems to exist within a bubble of positivity,” said Florian Ielpo at Lombard Odier Investment Managers.

Although medium-term risks remain — especially if AI adoption or revenue growth disappoints — the near-term fundamentals should remain resilient, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.

“The current deal flow supports supply chain guidance and could even drive consensus earnings upgrades. Overall, we see the present environment as fundamentally different from prior bubbles, with AI companies largely adopting more prudent investment strategies and healthier corporate finances,” she said.

Meantime, individual investors are buying stocks like never before and leaving the broader market in the dust. But at the same time, a surge in trading volume is raising fears that retail’s favorite positions are getting dangerously crowded.

Citigroup Inc.’s basket of 46 stocks most favored by non-professional investors, which includes companies like SoFi Technologies Inc. and Riot Platforms Inc., is far outpacing the S&P 500. Meanwhile, retail trading volume has increased to an all-time-high, the bank’s equity trading desk wrote in a research note this week.

Corporate Highlights:

Shipments from Tesla Inc.’s Shanghai factory increased in September as China’s car market kicks off its busy sales period and automakers start their final push to meet annual targets. Alphabet Inc.’s Google became the first company to be designated with so called strategic market status in the UK, exposing the US firm’s online search and advertising business to a closer scrutiny by the country’s antitrust watchdog. China slapped new port fees on US ships and started an antitrust investigation into Qualcomm Inc., the latest in a string of tit-for-tat moves as Presidents Xi Jinping and Donald Trump jockey for leverage before a key meeting to discuss trade and other issues. Chevron Corp. plans to drill as many as 10 wells offshore Namibia, one of the busiest exploration hotspots for oil and gas in Africa. Levi Strauss & Co. raised its full-year outlook, but warned that tariffs are starting to bite. Mosaic Co. said that third-quarter phosphate production fell below what management expected, citing mechanical issues at one plant and utility interruptions at another. Preliminary sales volumes for phosphates fell short of what analysts expected. Leaders at AI computing company CoreWeave Inc. sold shares worth more than $1 billion after a lockup on the stock lifted in mid-August, putting them among the top 10 individual insider sellers of the third quarter. Stellantis NV’s third-quarter shipments climbed 13%, led by a rise in North America, pointing to a recovery after the ailing carmaker worked down inventory in the US. Venture Global Inc. potentially faces multibillion-dollar damages over disputed liquefied natural gas shipments, after an unexpected loss in a landmark BP Plc arbitration that could pave the way for additional claims. Applied Digital Corp. said it’s now in advanced discussions with a hyperscaler client for its second data center campus in North Dakota. First-quarter revenue was well ahead of estimates due to one-time income from tenant fit-out services. Carlyle Inc. agreed to take control of BASF SE’s coatings business, creating a standalone company with an enterprise value of €7.7 billion ($8.9 billion). BlackRock Inc.’s actively managed funds are set to accept BBVA SA’s takeover bid for Banco Sabadell SA and tender their shares as the offer period is about to end, according to people familiar with the matter. An investor group led by I Squared Capital is planning a bid for German media group Ströer SE & Co.’s core advertising business, people with knowledge of the matter said. SoftBank Group Corp. is in talks to borrow $5 billion from global banks, refilling its coffers at a time Masayoshi Son is accelerating the Japanese investment firm’s bets on artificial intelligence. What Bloomberg Strategists say…

“President Trump’s escalating rhetoric on China, on the back of rising signs of stress in credit and increased concerns over a tech bubble, are a toxic combination that could derail stocks further just as a new earnings season gets underway.”

—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 fell 2% as of 1:08 p.m. New York time The Nasdaq 100 fell 2.6% The Dow Jones Industrial Average fell 1.4% The MSCI World Index fell 1.7% Bloomberg Magnificent 7 Total Return Index fell 3% The Russell 2000 Index fell 2.2% Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.4% to $1.1606 The British pound rose 0.3% to $1.3340 The Japanese yen rose 0.8% to 151.79 per dollar Cryptocurrencies

Bitcoin fell 2.7% to $117,889.92 Ether fell 5.4% to $4,103.16 Bonds

The yield on 10-year Treasuries declined nine basis points to 4.05% Germany’s 10-year yield declined six basis points to 2.64% Britain’s 10-year yield declined seven basis points to 4.67% The yield on 2-year Treasuries declined eight basis points to 3.52% The yield on 30-year Treasuries declined eight basis points to 4.65% Commodities

West Texas Intermediate crude fell 4.2% to $58.94 a barrel Spot gold was little changed –With assistance from Denitsa Tsekova and Vildana Hajric.

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