Trump Trade War Triggers Market Selloff After Shocking Jobs Report

The July jobs report surprised everyone and made markets nervous. The S&P 500 and Dow Jones 30 dropped sharply as the numbers came in weaker than expected. Moreover, the past data was also revised lower, adding to the concern. The manufacturing jobs are still struggling, despite tariffs intended to protect them. Investors now expect the Fed to cut interest rates, which caused bond yields and the US dollar to fall. But with cheap borrowing and trade tensions, there’s growing worry about a financial bubble.

Jobs Shock and the Trump Trade Fallout

The S&P 500 and Dow Jones dropped sharply after the July jobs report. The nonfarm payrolls increased by only 73K, far below the 104K forecast, as shown in the chart below.

However, the revision to May and June shocked the market. The revisions to May and June cut job gains by a combined 258K. May dropped to 19K and June to 14K. The weak data triggered a sharp drop in equities.

President Trump fired BLS Commissioner Erika McEntarfer, calling the report”rigged”. Kevin Hassett backed the decision but failed to provide evidence. Trump wants loyal appointees to control data reporting. Investors fear political interference in economic statistics, further shaking investor confidence.

On the other hand, the real economic stress is triggering the market momentum. The chart below shows that ISM manufacturing employment fell to 43.4 points in July.

Manufacturing Weakness and the Shifting Labour Landscape

The chart below shows the total employment trends in three key sectors: manufacturing, construction, and transportation and warehousing. It is found that in the late 1970s, manufacturing jobs have trended downward. July 2025 shows 12.7 million workers near post-pandemic lows and far below the 18 million peak in 1979. The decline reflects decades of automation, outsourcing, and global competition.

While manufacturing declined, the total for construction, manufacturing, and transportation/warehousing grew steadily since 2010. This growth highlights labour shifts toward logistics and infrastructure, not factory floors.

The sharp dip in 2020 was due to the COVID recession. The strong rebound afterwards reflects the rise in e-commerce and domestic distribution demand.

Despite protectionist policies aimed at bringing jobs back, manufacturing employment is negative at 12.7 million. This suggests that tariffs may have raised costs without delivering job gains in the intended sector. Growth in warehousing is tied to consumption and delivery, not production.

A slowdown in consumer demand or a logistics disruption could weaken this sector quickly. Meanwhile, the continued erosion of manufacturing reduces US industrial resilience.

As noted in Q1 2025 GDP, buyers rushed orders ahead of tariffs, temporarily boosting warehousing and transport in late 2024. But this surge led to a sharp drop in Q1 activity, followed by a rebound in Q2, showing how Trump’s trade war caused short-term volatility rather than stable growth.

Financial Risks Mount as Trade and Tariffs Weigh on Markets

Trump’s trade war is reshaping market expectations. The weak July data revived fears of a broader slowdown. Long-term Treasury yields plunged. The 10-year yield hit 4.2%, pricing in Fed rate cuts. The US Dollar Index dropped sharply on these expectations. A falling dollar boosted gold (XAUUSD) demand, as investors moved into safe havens.

The ChicagoFed’s index shows that money is very easy to borrow, with the reading falling to -0.57. This is the lowest level since 2021. This kind of easy credit, combined with Trump’s tariffs, could be risky. People and businesses might take on too much debt faster than the economy is growing. That’s what happened before the 2008 crash. If the Fed gives in to pressure and cuts interest rates too soon, it could lead to another financial bubble.

The Fed noted a balanced labour supply and demand. Chair Powell pointed to 3.9% average hourly earnings growth.

S&P 500 Forms Bearish Engulfing Pattern

The weekly chart for the S&P 500 shows that the index has been trading within a broadening wedge pattern. However, the release of the nonfarm payrolls report has led to a bearish engulfing pattern on the weekly candle. A break below 6200 could push the S&P 500 to $6,000.

Dow Jones 30 Reverses From 45,000 Resistance

The weekly chart for the Dow Jones 30 shows that it hit resistance at 45,000 and reversed lower. While the S&P 500 has produced record highs, the Dow Jones 30 has been unable to confirm the rally. The chart pattern reflects high volatility, as seen in the broadening wedge formation. However, the overall trend remains bullish as the index continues to trade above the 35,000 level.