(Corrects quote in last paragraph to read 'AI theme') By Chibuike Oguh NEW YORK (Reuters) -Investor worries that Wall Street's record stock rally would soon fizzle loomed large after tariffs re-emerged as a market risk. U.S. equity markets, fresh off midweek record highs, performed an about-face on Friday after President Donald Trump revived threats to hike tariffs against China, triggering worries that a possible tit-for-tat trade drama between the world's two biggest economies could mark the end of a record-breaking rise in U.S. equities. Trump, who was due to meet Chinese President Xi Jinping in about three weeks in South Korea, canceled the meeting and complained on social media about what he called China's plans to hold the global economy hostage after it dramatically expanded its rare earths export controls on Thursday. TARIFF TALK DRIVES DOWN MARKET Wall Street stocks fell sharply following Trump's comments. The Dow Jones Industrial Average fell 1.90%, the S&P 500 lost 2.71%, and the Nasdaq Composite lost 3.56%. The S&P 500 and the Nasdaq recorded their largest single-day percentage drops since April 10. The selloff raises concerns that high stock market valuations propelled by enthusiasm over artificial intelligence might lead to a significant downturn. The S&P 500 and the Nasdaq hit fresh record highs on Thursday and are up about 11% and 15%, respectively, in 2025. The Dow has gained about 7% year-to-date, all of which has rekindled memories of the late 1990s dotcom bubble that burst in 2000. JPMorgan Chase CEO Jamie Dimon, in a BBC interview on Wednesday, warned of a heightened risk of a significant Wall Street correction within the next six months to two years. "With equities at high valuations, this selloff is a sign of jitters," said Gene Goldman, chief investment officer at Cetera Investment Management. "Everything is priced for perfection, so the uncertainty increases market jitters. All of this adds uncertainty to economic growth." In April, Trump's announcement of what he called Liberation Day tariffs stunned markets and sent investors scrambling, causing S&P 500 companies to shed a combined $2.4 trillion in market value. But some investors say the latest U.S.-China trade tensions are unlikely to significantly change the market trajectory, with AI remaining the driving factor. "This is definitely a significant issue, and it could warrant a pullback but I don't necessarily see it derailing the AI theme that's been driving the market," said James St. Aubin, chief investment officer at Ocean Park Asset Management. (Reporting by Chibuike Oguh in New York; additional reporting by Sinead Carew in New York; Editing by Alden Bentley, Rod Nickel)
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