New York (CNN Business)Extreme fear is once again sending Wall Street into chaos. Investors are debating whether the longest bull market in American history is nearing an end or just taking a breather.
"Markets are fully convinced we are in the last stages of an economic cycle," Nicholas Colas, co-founder of DataTrek Research, wrote in a note to clients. "Traders are feverishly looking for the dry tinder that will turn a simple short circuit into a full-blown conflagration."
"We're at a very confusing point for the economy," said Kristina Hooper, global market strategist at Invesco. "It's not as predictable as it was last year when growth seemed a lot more potent."
Enter Tariff Man
Trump fueled doubt about the sustainability of trade peace on Tuesday when he called himself a "Tariff Man" in a tweet.
"The president's characterization of himself as 'Tariff Man' is juvenile and unpresidential," Dennis Gartman, editor and publisher of The Gartman Letter, wrote on Thursday. "We can only shake our heads in wonder and dismay."
The president also suggested tariffs will "MAKE AMERICA RICH AGAIN," despite the fact that these levies are paid by American companies and consumers.
"The payment comes from my pocket and yours," David Kotok, chairman and chief investment officer at Cumberland Advisors, wrote to clients on Thursday. "In a trade war the guns are pointed inward. No one wins."
Is the trade war getting better or worse?
"This arrest suggests that as opposed to getting better, things are getting worse," said Joe Quinlan, chief market strategist at Bank of America's US Trust.
The tit-for-tat tariffs with China threaten to overshadow the tax cuts and deregulation that had been helping speed up economic growth. Not only do tariffs lift costs, they disrupt supply chains and force businesses to delay investment decisions.
"We seem to be stuck in a cul-de-sac that we just can't get out of when it comes to the trade standoff with China," said Quinlan.
Meanwhile, one of Wall Street's favorite recession indicators is suddenly flashing yellow. The gap between two-year and 10-year Treasury yields has narrowed to levels unseen since just before the Great Recession.
Investors are getting nervous that the yield curve will invert, meaning short-term rates are higher than long-term ones. That has in the past been a reliable prognosticator of recessions.
Even though investors are watching for the next recession, the underlying fundamentals of the economy look solid, if not strong.
"It's hard to pencil in a recession anytime soon," said Quinlan. "The US consumer is at the core of the economy -- and that core is pretty rock solid right now."
In the meantime, investors should brace for more volatility. Turbulence is par for the course in late-cycle markets.