Adam Crisafulli of Vital Knowledge says Trump's sharp escalation—including his threat to cancel a meeting with Xi Jinping and his promise to impose 100% tariffs on all Chinese imports starting November 1, along with export controls on "any critical software"—has clearly shaken markets, particularly the tech sector.

These measures, believed to be aimed at chip design companies like Cadence Design Systems Inc (NASDAQ:CDNS) and Synopsys Inc (NASDAQ:SNPS), mark the most aggressive trade stance in months.

Crisafulli notes that the November 1 deadline still leaves a window for a potential deal and expects some form of détente before the tariffs are fully implemented. He points to upcoming World Bank and IMF meetings in Washington as a venue for behind-the-scenes negotiations. Even if the formal Trump-Xi meeting is canceled, both leaders are still scheduled to attend the APEC summit on October 31, making an informal meeting likely.

"While our view on this latest escalation in US-China relations may appear optimistic, that doesn't mean the stock slide represents a compelling buying opportunity," Crisafulli wrote in a note to clients hours after the Dow Jones Industrial Average lost 1.9%, while the S&P 500 and the tech-focused NASDAQ Composite lost 2.7% and 3.6%, respectively.

He argues that the real problem isn't just tariffs, but market positioning. Consequently, stocks entered this phase "overheated, complacent, and expensive."

The main risk, he says, is the market's heavy reliance on the tech sector—and more specifically, on AI optimism, driven by the massive spending associated with OpenAI. OpenAI's spending commitments "to the tune of nearly $1 trillion over the past few months have done more than anything else to lift the stock," Crisafulli wrote.

Tariffs are also returning as a structural negative factor beyond China. Crisafulli notes the pending Supreme Court ruling on the IEEPA tariffs, which could destabilize the entire trade regime.

While consensus suggests the court will overturn them, he cautions that this may not be a positive outcome: Trump could resort to other legal means to keep the tariffs in place, prolonging the uncertainty until 2026, while any hit to tariff revenues could put pressure on Treasury funding and lead to higher yields.