alleged trillions wiped out in tariff selloff were overvalued stocks (results 001)
The recent market selloff triggered by tariff announcements has raised questions about whether the trillions wiped out in value reflected overvaluation or a fundamental repricing. Here’s the breakdown:
Market Reaction to Tariffs
The S&P 500 fell 2.3%, the Nasdaq dropped 2.8%, and the Dow lost 900 points, erasing an estimated $9.5 trillion in global market value amid tariff fears. Goldman Sachs estimates that every 5-percentage-point increase in U.S. tariff rates could reduce S&P 500 earnings per share by 1–2%, with current proposals potentially cutting EPS by 2–3%.
Valuation Context
Morningstar noted that stocks were trading at a "rare premium over fair value" before the selloff, suggesting some overvaluation. However, the severity of the decline also reflects uncertainty about tariff impacts on supply chains, margins, and global trade.
The selloff was exacerbated by algorithmic trading reacting to unverified news, causing wild swings (e.g., a brief $X trillion surge on a false tariff-pause rumor).
Sector-Specific Impacts
Tech stocks, which led losses, face higher exposure to global supply chains and tariff-related cost pressures. Auto manufacturers with USMCA-aligned production saw less immediate impact.
Conclusion
While pre-tariff valuations were stretched, the selloff reflects both correction of overvaluation and genuine economic risks from trade tensions. The volatility underscores market sensitivity to policy uncertainty.
alleged trillions wiped out in tariff selloff were overvalued stock (results 002)
The claim that the trillions wiped out in the recent tariff selloff were due to overvalued stocks is partially supported by market analysts. Morningstar's Chief US Strategist, Dave Sekera, noted that the market downturn aligns with their earlier valuation assessments, as stocks were trading at a "pretty rare premium over fair value" at the start of 2025. Goldman Sachs Research similarly estimated that the S&P 500's earnings per share could decline by 2–3% due to tariffs, reflecting underlying vulnerabilities in corporate profitability.
However, the scale of the selloff—erasing an estimated $9.5 trillion globally—was exacerbated by panic selling and algorithmic trading reacting to unverified news about tariff pauses. The volatility underscores how macroeconomic shocks can amplify preexisting market imbalances, even if some stocks were overvalued.
https://www.perplexity.ai/search/alleged-trillions-wiped-out-in-gLiD6TIcT6.u3ujUyzrmlA
ratio of overvalued stocks sold compared to fundamental repricing with respect to tariff selloff
The recent market selloff triggered by President Trump's tariff policies reflects a combination of panic-driven liquidation and fundamental repricing, with hedge funds and ETFs disproportionately offloading overvalued stocks while the broader market adjusts to revised growth expectations.
Overvalued Stock Selloff
Hedge funds and leveraged ETFs dumped over $40 billion in stocks, marking the largest net selling by long/short equity hedge funds in nearly 15 years. Tech stocks were heavily targeted, with leveraged ETFs preparing to sell $23 billion in holdings.
Retail-focused fintech firms like Affirm and Robinhood saw shares plummet 21% and 17%, respectively, as their valuations were particularly vulnerable to consumer spending risks.
Fundamental Repricing
The S&P 500’s implied volatility (VIX) spiked 64% in two weeks, signaling a rapid reassessment of growth prospects due to tariffs. The index’s price/sales ratio had reached 2.1–3.2x historical norms before the correction, implying a potential 52–69% downside if valuations reverted.
Markets priced in 125 basis points of Fed rate cuts, reflecting recession fears. The selloff erased $9.5 trillion in global equity value, pushing the S&P 500 toward bear-market territory.
Key Drivers
Tariff Impact: The 10–25% tariffs on $1.36 trillion of imports could raise $300 billion annually, directly pressuring corporate margins and consumer demand.
Sector Divergence: Financials and tech bore the brunt of selling, while defensive sectors like utilities saw net inflows.
The selloff appears driven by both speculative unwinding (overvalued stocks) and systemic repricing (tariff-induced growth risks), with hedge funds leading the former and broader markets reacting to the latter.
https://www.perplexity.ai/search/ratio-of-overvalued-stocks-sol-j.z824vYTzOmnPPLwtkjQw
describe ETF stocks that lost value in tariff selloff
ETFs Impacted by Trump's Tariff Announcement
Tech-Heavy ETFs
The Invesco QQQ ETF, tracking the Nasdaq-100, dropped 3.3% as leveraged ETFs sold $23 billion in tech stocks to rebalance portfolios. The SPDR Dow Jones Industrial Average ETF (DIA) fell 1%.
International Equity ETFs
Emerging Markets: The iShares MSCI India ETF (INDA) declined 2.8%, while the iShares MSCI China ETF (MCHI) fell 2.4% after tariffs of 26% (India) and 34% (China) were announced.
Vietnam: The VanEck Vietnam ETF dropped 3.2%, and the Global X MSCI Vietnam ETF plunged 6.5% following a 46% tariff on Vietnamese goods.
Japan: The iShares MSCI Japan ETF (EWJ) lost 3.2% amid 24% tariffs.
Sector-Specific ETFs
Retail and apparel-focused ETFs suffered as companies like RH, Gap, and Lululemon saw shares drop 8–25% in after-hours trading due to import reliance.
Volatility-Driven Selloffs
Systematic strategies and volatility-targeting ETFs were forced to sell $25–30 billion in equities to de-risk, exacerbating losses.
The selloff erased $4 trillion from the S&P 500, with international ETFs particularly vulnerable to prolonged tariff pressures.
https://www.perplexity.ai/search/describe-etf-stocks-that-lost-rugdTG01S46Ifwm1Q1iy5g
ETF stocks definition
An exchange-traded fund (ETF) is a type of investment fund that pools together a basket of securities—such as stocks, bonds, commodities, or currencies—and trades on stock exchanges like an individual stock. Unlike mutual funds, which are priced once daily, ETFs offer real-time pricing and can be bought or sold throughout the trading day.
Key Features of ETFs
Diversification: Provides exposure to multiple assets in a single trade, reducing risk compared to individual stocks.
Lower Costs: Typically has lower expense ratios than actively managed mutual funds due to passive index tracking.
Tax Efficiency: Often more tax-efficient than mutual funds due to their unique structure.
Transparency: Holdings are usually disclosed daily, unlike some mutual funds.
How ETFs Work
Creation/Redemption: ETF providers create or redeem shares in large blocks to align with the fund’s net asset value (NAV).
Trading: Investors buy/sell ETF shares on exchanges at market-determined prices.
Tracking: Most ETFs passively track an index (e.g., S&P 500), though some are actively managed.
Common ETF Types
Index ETFs: Track benchmarks like the S&P 500 (e.g., SPY, VOO).
Sector/Thematic ETFs: Focus on specific industries or trends (e.g., tech, clean energy).
Bond/Commodity ETFs: Invest in fixed-income securities or commodities like gold.
ETFs are popular for their flexibility, cost-effectiveness, and accessibility to diversified markets.
https://www.perplexity.ai/search/etf-stocks-definition-kjFYBKy1RyWScIZxtWPYVg
we're ETF stocks available during the crash of 1987
No, ETFs (Exchange-Traded Funds) were not available during the 1987 stock market crash. The first U.S.-listed ETF, the SPDR S&P 500 ETF (SPY), was introduced in January 1993, nearly six years after Black Monday.
The 1987 crash exposed the need for more efficient market instruments, which later led to the creation of ETFs as a way to improve liquidity and provide broader market access. The crash highlighted the limitations of existing trading mechanisms, prompting regulatory and financial innovations that eventually included ETFs.
https://www.perplexity.ai/search/we-re-etf-stocks-available-dur-SzoAwMGZTDWIDsuVI1pD1g
tariff selloff invalid comparison to 1987 crash due to lack of ETF availability
The comparison between the recent tariff-induced selloff and the 1987 crash is flawed due to the absence of ETFs during the latter event. The SPDR S&P 500 ETF (SPY), launched in 1993, was specifically designed to address liquidity issues exposed by the 1987 crash, providing institutional and retail investors with a more efficient way to trade the S&P 500.
Key differences:
Market structure: The 1987 crash was exacerbated by poor coordination between stock and futures markets, whereas modern exchanges now communicate in real time with circuit breakers to mitigate extreme volatility.
Trading tools: Portfolio insurance strategies in 1987 relied on derivatives and manual execution, while today's automated high-frequency trading and ETF liquidity act as shock absorbers.
Investor access: SPY and other ETFs now offer hedging alternatives not available in 1987, such as gold (GLD) and bond ETFs (BSV), which can stabilize portfolios during downturns.
While algorithmic trading and social media can amplify selloffs, the financial system's post-1987 reforms and ETF ecosystem reduce the likelihood of an identical crash scenario.
https://www.perplexity.ai/search/tariff-selloff-invalid-compari-l1PC717aQE.5h.RzqhBWPA
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