How tariff wars, shifting trade dynamics, and market signals warn of hidden risks beneath record-high US stock prices.
For months, the US stock market seemed bulletproof, hitting new all-time highs like clockwork. Then, a single tweet from Donald Trump threatened a 100% tariff hike on China, wiping out $1.7 trillion in the S&P 500’s market cap almost overnight. The market rebounded the next day, but lurking beneath that recovery is a deeper, more concerning story. Despite record highs in dollar terms, when measured against gold—an age-old safe haven—the stock market is near decade lows.
In this article, you’ll learn why this gold-stock divergence matters, how escalating US-China trade tensions threaten global economic stability, and what savvy investors should watch for next.
Why the Stock Market’s Rise Isn’t the Whole Story
At first glance, the S&P 500’s continuous record highs look like a bull market in full force. But zooming out to measure stocks in terms of gold reveals something different. Since early 2024, the S&P has been sinking when compared to gold. That means while stock prices are up in dollars, their real value measured by gold—the benchmark of true store of wealth—is falling.
This isn’t just academic. Historically, a declining stock market in gold terms has coincided with stock stagnation or crashes in dollar terms, notably in the early 2000s dotcom bust and the 2008 financial crisis. Going further back, the 1970s—a decade marked by stagnation and inflation—showed the same pattern.
This pattern signals a flight to safety, where investors, worried about risks, move capital into gold rather than stocks. Right now, both gold and stocks are rising, an unusual divergence. This suggests market optimism is fragile, possibly propped up by temporary forces.
What’s Driving This Market Fragility?
Trump’s Tariff Threats and Trade War Risks
Donald Trump’s tweet about doubling tariffs on Chinese goods to around 140% risked shutting down US-China trade. At that extreme tariff level, importing Chinese products becomes unprofitable, threatening to trigger an economic depression.
Though Trump quickly backtracked, the threat exposed a fragile, deteriorating trade relationship. China’s exports to the US have already dropped 27% since the trade war began. But interestingly, China boosted exports to other parts of the world by 8% last year, offsetting those losses. This growing independence suggests a widening rift between US and Chinese economic interests—a divide that could eventually force harsh trade policies.
High Corporate Profits Mask Underlying Risks
US corporate profits are currently at all-time highs, helping stocks hold strong despite trade threats and worsening consumer sentiment. Several structural forces keep propping up profits:
- The US government runs a $2 trillion annual deficit, roughly 7% of GDP, stimulating demand.
- The Federal Reserve is cutting interest rates, lowering borrowing costs and easing financial conditions.
- Corporate profit margins remain historically wide, allowing businesses to thrive and shareholder wealth to grow.
These factors push all financial assets higher—even gold and Bitcoin, which normally behave differently from stocks. Both of those assets have outpaced the stock market gains in recent years, reinforcing the sense that current strength may be masking deeper vulnerabilities.
Key Market Signals to Watch
| Market Signal | What It Indicates |
|---|---|
| S&P 500 vs Gold Decline | Real value of stocks weakening despite dollar gains |
| Tariff Threats | Potential trade disruptions and economic slowdown risks |
| Rising Gold & Bitcoin | Investor caution and search for safety despite market highs |
| Corporate Profit Margins | Artificially bolstered earnings masking underlying economic risks |
Answer Box: Why Does the Stock Market Look Different When Measured in Gold?
The stock market valued in gold shows real purchasing power, filtering out inflation and currency fluctuations. When stocks fall relative to gold, it signals investors are seeking safety and that stock valuations might be overly optimistic in dollar terms. This divergence often precedes or coincides with economic slowdowns.
How Investors Can Prepare
On October 9th, Braavos Research prudently booked profits and raised cash, anticipating a possible correction amid these complex signals. Risk management—locking in gains and preserving capital—is critical when markets show conflicting signals.
Having dry powder ready allows investors to act decisively when clearer opportunities emerge during pullbacks. Braavos has already started redeploying capital into select stocks with strong upside potential, reflecting a nimble, tactical approach.
Risks: What Could Go Wrong?
- Trade escalations: If tariff threats materialize fully, global trade could collapse, leading to recession or depression.
- False optimism: Government deficits and low rates are temporary supports; when they fade, stock valuations may plummet.
- Global economic fragility: The US-China decoupling could unsettle global markets, supply chains, and growth.
- Sentiment shifts: Plummeting consumer confidence or unexpected shocks may trigger sell-offs.
Investors ignoring these warnings risk severe portfolio drawdowns.
Actionable Summary
- The US stock market’s rise masks weakening real value measured by gold.
- Trump’s 100% tariff threat exposed fragile US-China trade relations with long-term risks.
- Corporate profits and government stimulus currently prop stocks but may not last.
- Gold and Bitcoin’s rise alongside stocks show underlying market caution.
- Effective risk management—booking profits and holding cash—is essential now.
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FAQ
Q: Why is gold rising even when stocks hit all-time highs?
A: Gold’s rise signals investor caution and demand for safety amid uncertainties like trade wars, despite record nominal stock prices.
Q: How dangerous are Trump’s tariff threats?
A: While unlikely to be fully enforced, a 100% tariff hike risks severing crucial trade ties, potentially triggering a global downturn.
Q: What does measuring stocks in gold tell us that dollar terms don’t?
A: It reveals the real purchasing power of stocks after inflation and currency fluctuations, highlighting scenarios where stocks may appear overvalued.
Q: Are corporate profits a reliable indicator of market health now?
A: Not fully—they are boosted by government spending and low rates rather than organic growth, increasing vulnerability.
Q: How should investors protect themselves amid these risks?
A: Prioritize risk management by taking profits, holding cash reserves, and selectively adding positions during corrections.
Disclaimer: This article is for informational purposes only. It does not constitute financial advice. Investors should conduct their own research or consult professionals before making investment decisions.
By Wolfy Wealth - Empowering crypto investors since 2016
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Disclosure: Authors may be crypto investors mentioned in this newsletter. Wolfy Wealth Crypto newsletter, does not represent an offer to trade securities or other financial instruments. Our analyses, information and investment strategies are for informational purposes only, in order to spread knowledge about the crypto market. Any investments in variable income may cause partial or total loss of the capital used. Therefore, the recipient of this newsletter should always develop their own analyses and investment strategies. In addition, any investment decisions should be based on the investor's risk profile
