Trump Trade War: Tariff Optimism Collides with Economic Warning Signs

Donald Trump has reignited focus on tariffs through Truth Social. He stated that the benefits of tariffs are still unfolding and will eventually generate historic wealth for the U.S.

He stated:

“The full benefit of the Tariffs has not yet been calculated,”

Trump says the delay in tariff benefits happened because foreign buyers were stockpiling goods to avoid extra charges. However, that trick is now losing its effect. He believes that once all goods face tariffs, the money paid to the U.S. will increase sharply.

Tightening Liquidity and Weak Jobs Data Raise Red Flags

The Chicago Fed’s National Financial Conditions Index sits at -0.538, a level consistent with easy monetary conditions. These conditions typically support strong asset prices.

However, stress is building despite this strength. Bitcoin (BTC) has broken below the key $100,000 support level, signaling a tightening of liquidity. Crypto is often the first to react to hidden credit stress.

Meanwhile, the job market is quietly weakening. The chart below shows that continued unemployment claims have surged to 1.97 million. Additionally, the unemployment rate has increased to 4.4%.

There has also been a steady loss of 100,000 jobs in key cyclical sectors such as manufacturing, construction, and transportation. If these sectors continue to decline in the near future, it would signal a potential recession. They usually weaken first during economic downturns. Their current slowdown could be a warning sign.

How Economic Stress Is Weighing on the Stock Market

The stock price remains highly overpriced. The chart below shows that the S&P 500 trades at 3.30 times sales. This is well above its historical average of 1.8.

Moreover, the S&P Tech sector’s forward P/E ratio is still at its highest level since 2002. Investors have priced in perfection so that any disappointment could trigger sharp pullbacks.

The daily chart of the S&P 500 (SPX) shows that the index has broken below the red dotted trendline, which also intersects with the 50-day SMA. This breakdown signals a shift to a short-term downtrend. A drop below 6,500 could trigger further downside. The strong support is located near the 200-day SMA, around the 6,200 level.

However, the broader trend remains bullish. The appearance of an inverted head and shoulders pattern, along with a double bottom in April 2025, supports this view. Therefore, the current correction may offer a buying opportunity for the next move higher.

A similar price structure is observed in the Nasdaq 100 index, where the index has reached strong support around the 23,900 level, aligned with the lower boundary of an ascending broadening wedge pattern.

A break below this support could trigger another drop toward the 22,700 level. However, the emergence of an inverted head and shoulders pattern suggests that this correction may be a buying opportunity for the next move higher.

Bottom Line: Tariffs, Tension, and a Shaky Market Ahead

Trump claims the full impact of the tariffs is still unfolding and promises massive future gains. However, global trade tensions remain high, and political divisions add even more uncertainty.

At the same time, the economy shows early warning signs. Liquidity is tightening. Job losses in key sectors are rising. Bitcoin’s sharp drop also hints at credit stress that may soon spread. If these trends continue, recession risks will increase.

The valuations are stretched, and technical conditions also present overbought signals. The support levels in major indexes are breaking. The broader picture remains bullish, but the fundamentals suggest significant volatility ahead. Any further economic shock could trigger a deeper correction in the S&P 500 and Nasdaq 100.