Stocks closed sharply lower on Friday and for the week.

After opening higher, stocks quickly turned south after President Trump, in response to China's rare earths policy, said he was considering putting 100% tariffs on China, in addition to the tariffs already in place on their goods.

President Trump wrote on Truth Social that China was "becoming hostile" in regard to the country's previous day's announcement that they were enacting new export restrictions on rare earth materials. This covers 12 elements, as well as rare earth magnets and other related products and technologies. The restrictions will not just be applied to the U.S., but all customers around the world. The onerous restrictions are wide-ranging, and would require an export license, even if the finished product was produced by other countries, but happened to use Chinese equipment or material to make it.

China mines and produces 60% of the world's rare earths minerals, and processes 90%. They are used in virtually all modern-day technologies and electronics, including semiconductors, electric vehicles, and renewable energy. They are also used in military equipment.

One analysts said, China's restriction were "an economic equivalent of nuclear war ? an intent to destroy the American AI industry."

President Trump, who was scheduled to meet Chinese President Xi Jinping later this month at the Asia-Pacific Economic Cooperation summit in South Korea, said he no longer saw any reason to meet.

Although, he later said, since both would be at the summit, he likely still would keep their meeting.

China's new policy is expected to go into effect in November. And Mr. Trump's proposed retaliatory tariffs are scheduled to go into effect on November 1^st. This gives each country an opportunity to pull back from the brink.

China's move is largely seen as an effort to gain some leverage ahead of their talks. Especially given the U.S. export controls on semiconductor chips to China.

In light of the market drawdown, here's a few things to consider: 1) while October is considered the most volatile month for stocks (we just saw some of that on Friday), the market usually ends higher; 2) after months of gains, the market was ripe for a pullback ? and given that stocks typically pull back roughly 5% or more roughly 3 times a year, such a move is not out of the ordinary, and should not come as a surprise; and 3) Q4 is considered the best quarter for stocks, October volatility notwithstanding.

I should also add that I'm still expecting more gains with the S&P finishing the year with another 20%+ for 2025, and making it the third year in a row of 20%+ gains (2023 was up 24.2%, and 2024 was up 23.3%). In fact, I believe the unprecedented AI trade, coupled with interest rate cuts, will continue to fuel this historic bull rally, much like we saw in 1995-1999 when the dot-com tech boom led to 5 years in a row of 20%+ gains back then. And I'm expecting the same thing with the AI boom, 5 years (or more) of 20%+ gains per year.

So, for those expecting the same, this pullback could be a great opportunity to buy the dip. And with the S&P 'only' up 11.4% YTD, against forecasts for 20% or more by the end of the year, it could turn out to be a spectacular way to finish an already fantastic year.

See you tomorrow,