Yesterday, we talked about the setup for a potential market correction, led by some negative technical signals, not the least of which come from the most important stock in the world:  Nvidia. 

And today, the Trump administration confirmed that the geopolitical trigger that may drive it isn't going away.

 

At a press conference this morning, Trade Representative Jameson Greer and Treasury Secretary Scott Bessent laid out, in detail, the severity of China’s rare earth export control threat.

 

They called it a “global supply chain power grab,” and a form of “economic coercion on every country in the world.”

 

Greer went on to outline the scope, which would give Beijing effective control over any global product containing even 0.1% of Chinese-mined minerals.

That would cover semiconductors, EVs, batteries, and even basic consumer products.

 

As he put it, “This gives China control over basically the entire global economy and technology supply chain.”

 

Bessent followed by framing the moment with the most direct language yet from the administration:

“Make no mistake, this is China versus the world. We and our allies will neither be commanded nor controlled.”

He went on to confirm that the White House is working in close coordination with Europe, India, and the democracies in Asia — all of whom are similarly affected.

 

Is this the “isolate China” phase we’ve been anticipating?  It's looking likely.  

 

Importantly, while emphasizing that the U.S. seeks to “de-risk, not decouple,” the message was clear, "if China wants to be an unreliable partner to the world, then the world will have to decouple."

 

Add to all of this, in the press conference today, Bessent also revealed this very important nugget about the U.S./China negotiations that have been ongoing for months.  He said in late August, a Chinese trade delegate threatened that "China would cause global chaos if port shipping fees go through."  

 

These are hefty fees announced last April to be levied against Chinese ships entering U.S. ports — to go into effect October 14th (yesterday!).

 

So, we have a flashpoint here in the trade war.  And we have to wait weeks for an event that could offer clarity (a potential Xi/Trump meeting, the trade pause deadline, and the China export control effective date).  

 

With the above in mind, the market's perception of the risk environment is recalibrating.

 

The VIX has been trading above 20 for four consecutive days. 

 

That tends to come with lower stock prices. 

 

And as we've discussed, in recent days, a correction in stocks tends to get a policy reaction from the Fed.  The National Bureau of Economic Research (NBER) did a study on it.  Since 1994, a 10% stock market correction predicted a 32 basis point reduction in the fed funds rate — and a 127 basis point decrease after one year.

 

In this environment, getting the Fed moving on rates could ignite the needed next leg of the re-industrialization cycle — and with urgency, maybe a new "operation warp speed" to address self-sufficiency in pharma, semis, rare earths, ship building, etc.