Tanking Markets Serve Overdue Wake-Up Call for Investors
A deep decline should have prudent investors reassessing risks to the market.
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Markets fell sharply on Friday to close out the trading week on a quite sour note. The NASDAQ fell over 3.5% and S&P 500 was off just over 2.7%. Oil and the yield on the 10-Year treasury also plunged. Crypto was hit particularly hard with Bitcoin falling approximately 10% and other cryptocurrencies had bigger selloffs.
The trigger for the broad-based pull back was an unexpected escalation in the trade wars between the U.S. and China. Ostensibly, the source behind this blow up was changes to Chinese policies around rare earth exports which was followed by threats from the Trump administration for much higher tariffs on imports from China. The market is set to rebound on Monday after the POTUS issued some commentary saying these differences will "all be fine" in the end.
However, the big sell-off on Friday should be a big and needed wake-up call for investors. The continued trade riff between the two biggest economies on the planet is just one of the many major risks the investment community has chosen to ignore over the past couple of quarters as equity market continued to hit one all-time high after another. Stocks have been in nosebleed territory based on historical valuation metrics like the Shiller PE ratio for quite some time.
Trade tensions between China and the U.S. are just one of the many significant risks the market has been happy to push into the background while stocks continue to push into record territory. The AI narrative has started to develop some notable chinks in recent weeks. More attention has started to be paid to the vendor-financing-circle that has been a primary driver of this bubble that has powered the majority of gains in the overall market over the past three years. Wolf Street just posted another article on this topic, noting that OpenAI has some $1 trillion in future obligations to the likes of Oracle (ORCL) and NVIDIA Corporation (NVDA) . For older investors this is reminiscent of the last vestiges of the Internet Boom when Cisco Systems (CSCO) , Lucent and Global Crossing created a similar self-supporting ecosystem.
Gold has been surging all year, and the dollar suffered its worst drop against major currencies in the first half of 2025 to start a year since 1973. Outside of the upper crust of top income earners, the consumer is increasingly struggling. Delinquency rates for student and non-prime auto loans are soaring. The housing market has been moribund for a couple of years now and things are shaping up for a brutal year in 2026 as home sellers outnumber home buyers by the largest number in more than a decade. It has become a dystopian landscape where average new home prices have dropped to under that of average existing home prices over the summer. Mortgage foreclosure rates are already heading higher and will spike in the first half of 2026 as FHA COVID-related loss mitigation efforts to keep people in their homes have now largely ended.
The recent bankruptcies of subprime auto lender Tricolor Holdings and auto supplier First Brands attest to some of the cracks that appear to be developing in the private credit markets.
In summary, Friday’s sell-off should be viewed as a wake-up call for prudent investors to re-evaluate their portfolio allocation to ensure it aligns with their risk tolerances and investment goals. That shouldn’t change even if equities rebound early this week.
At the time of publication, Jensen had no positions in any securities mentioned.
