Major indices were moving higher this morning, but abruptly declined after Trump posted on Truth Social threatening further tariffs on China (more below).

China recently announced further export controls on rare-earth minerals and encouraged Chinese companies to use domestic chips instead of Nvidia’s (NVDA).

As known, rare earth elements make up critical components of many technological supply chains. Elements like Neodymium (Nd), Dysprosium (Dy), and Terbium (Tb) are especially valuable for producing powerful permanent magnets used in motors, generators, and advanced electronics.

In response to these moves and China’s broader geopolitical posturing, Trump threatened greater tariffs on China and suspending meetings with Xi Jingping.

China has monopolized the mining of rare earth, producing 60% of the world’s rare earths and processing nearly 90% of them. Trump's new initiatives to mine rare earths domestically, for example MP Materials (MP) and the Department of Defense's $400 million deal, aims to build alternatives by 2027.

The defensive sectors of Consumer Staples (XLP) and Utilities (XLU) are the only sectors holding in the green. Technology (XLK) is the worst performer as restriction on rare exports could create issues for companies involved in the semiconductor supply chain.

On the economic front, University of Michigan Consumer Sentiment was unchanged in October at 55, beating consensus of 54.2. Views on current conditions are improving, while future expectations have moved down.

Inflation expectations are playing a big role. The 1-year inflation expectation dropped to 4.6% while the 5–10-year inflation expectations remain flat at 3.7%.