The Tariff Tango: A Waltz We've Danced Before
There's a rhythm to how capital markets respond to trade threats. Not a pattern, exactly—nothing that predictable. But a rhythm. A tempo that repeats enough times that you start to recognize the beats.
We're in the middle of one right now, and if you've been paying attention to the market moves over the past 48 hours, you've seen the choreography executed almost to the measure.
Here's how it goes: The threat lands (100% tariffs on Chinese goods by November 1st). The VIX spikes to 27, its highest point since April. Bitcoin drops below $107K. Gold rallies past $4,300 per ounce. Safe-haven bidding across the board. The regional banking sector, already fragile from credit deterioration, gets hammered. Zions down 13%, Western Alliance off 10%. The broader market shudders. Thursday was that move.
Then comes the second step. An official, strategically timed statement. Treasury Secretary Scott Bessent will be speaking with his Chinese counterpart. Trump mentions a possible Xi summit at month's end. The language softens almost imperceptibly. Not a climb-down, just a recalibration of expectations. Within hours, the morning anxiety reverses. The S&P 500 bounces 0.53%. The Nasdaq climbs 0.52%. The Dow actually goes positive. By Friday, the worst of Thursday's carnage feels like ancient history.
This isn't new.
We saw it in 2018 when Trump first started talking tariffs. Market falls, officials negotiate, deal gets done or threat gets paused, market reverses. We saw it again in 2019 with the China Phase One negotiations. The script is familiar enough that you can almost predict the turn. The precision of the rally into the close on Friday—all three major indices in the green, the VIX compression, the reversal in safe havens—it wasn't organic panic followed by organic relief. It was the market asking a specific question and getting answered with a specific signal.
But here's where the rhythm breaks down, and why this matters.
The problem isn't the tariff threat or the tariff threat being walked back. The problem is that the credit issues underneath all this noise don't actually care about trade negotiations. Tricolor Holdings' fraudulent loans are still fraudulent whether tariffs hit or not. First Brands Group's bankruptcy doesn't depend on whether Xi gets invited to Budapest. The $1 trillion in commercial real estate loans expiring this year remain a structural headwind regardless of what gets announced in a press briefing.
The market has learned to love this specific drama because it provides a narrative that displaces attention from what actually matters. For 48 hours, everyone's talking about China tariffs. Nobody's asking deeper questions about whether AST really deserves a 70% rally in October while dropping 5% on Friday because its "valuation ran ahead of fundamentals." Nobody's examining why Oracle dropped 7% in what would have been its worst day since January on guidance concerns, yet the broader market rallies anyway.
The regional banks that got hit on Thursday are already showing signs of stabilization. Morgan Stanley beat estimates badly ($2.8 per share versus $2.08 consensus). Bank of America printed strong numbers. The big boys are fine. The small boys have credit problems that will probably work themselves out over time. The ultra-big boys will make money off the volatility in between. This is how the system actually works.
UBS, in a note Friday, decided this was a good moment to upgrade global equities to "attractive," citing accelerating momentum in AI adoption and favorable growth outlook. The firm noted we're in the fourth year of an equity bull market that "has further to run." This is technically true. It's also the kind of statement that makes sense when you're making money regardless. If clients sell equities out of fear, that's great for trading flows. If they stay in, that's passive collection of management fees on a larger asset base. Either way, the house wins.
The euro has strengthened to 1.1710 against the dollar. The Swiss franc is in demand at 0.7900 USD/CHF. These are the moves of people deciding that dollar depreciation and potential trade chaos make alternatives look safer. Yet the stock market rallies anyway. How? Because the rally isn't about fundamentals getting better. It's about the near-term narrative risk getting lower.
Gold is up 2% on the day, already north of $4,300. Bitcoin rebounded slightly to $107K after dipping lower. These are classic bifurcation trades—the market simultaneously pricing in safety concerns (gold, bonds rallying) and risk appetite (stocks rallying). The tension between these is where the real signal lives, not in the headline close.
What worries me more than the tariff threat—which will probably be negotiated down or paused again, following this familiar rhythm—is how this cycle is eating into the calendar. We're in week three of a government shutdown with October's PPI data likely unpublished. We've got an FOMC meeting coming up, and Fed officials (Kashkari from Minneapolis) are already floating the notion of two more "insurance" cuts before year-end. Insurance cuts. That's what we call rate cuts when the economy is growing and labor markets are tight but you're nervous about something else. That's not the language of confidence.
The market dances this tariff tango every few years because it has to—trade policy is real, negotiations are real, geopolitics are real. But the volatility that comes with it is covering for something more persistent: an economy that's generating fewer genuinely healthy credit opportunities, so banks are reaching into murkier territory. A stock market that's built on enthusiasm about one sector (AI) while other sectors are structurally declining. A credit system where midsize borrowers are feeling the squeeze more than they were in 2023.
The tariff threat gets resolved or paused. The market rallies. The headlines move on. And underneath, the credit issues keep accumulating, one quarterly surprise at a time.
We've danced this waltz before. The question isn't whether we'll get to the resolution. We will. The question is what shape the dance floor is in by the time the music stops.