Square (NYSE:SQ) stock closed at $60.45 on Friday, for a 4% loss on the day. That’s one of the worst single-day performances for SQ stock since the company reported Q2 earnings at the start of August. With Q3 earnings not due for nearly three weeks, what spooked investors on Friday and slammed Square?

The factors that led to the drop in SQ stock on Friday were out of the company’s control.

Markets were reacting to a number of issues that combined to hit stocks in general, and SQ was far from the only casualty. The Nasdaq Composite ended up closing down 0.83% as many tech stocks took a hit, and the Dow Jones Industrial Average was down 0.95% on the day. Tech companies involved with retail were hit particularly hard.

And while Square stock was down 4% on the day, its rival, Shopify (NYSE:SHOP), took a 5% hit. And even mighty Amazon (NASDAQ:AMZN) closed down 1.6% on Friday.

So what was causing the panic?

Tariffs Bite the Chinese Economy

The two big issues that hit the stock market on Friday roll up to a single factor that has loomed large for the past year: China.

Concern continues about the U.S. relationship with China and the ongoing trade war between the two countries. On Oct. 11, President Trump announced a “Phase One” trade deal with China had been negotiated. In the announcement, he noted that he expected papers to be signed within weeks. The deal would see the U.S. delay the next round of tariffs on Chinese goods, which had been scheduled to kick in on Oct. 15. News of the deal sent stocks up, and Square stock got a boost as well.

However, the celebration was short lived.

Within days, doubts were emerging about whether China was actually on board with the trade deal. And even if China did sign — which would also eliminate another phase of U.S. tariffs scheduled to take effect in December — the trade deal wouldn’t address the underlying tensions between the two countries. That doubt over whether the trade war is actually cooling, and whether differences between the U.S. and China might flare up in other areas have been a drag on stocks. This doubt also contributed to the negative vibe that hit the markets on Friday.

Amid that backdrop, the catalyst to the Friday reaction was a report released on Thursday showing that third-quarter economic growth in China had stalled, hitting its lowest level in nearly three decades. U.S. tariffs are hitting the country hard, and production is beginning to slow. As the world’s second-largest economy, that news is worrisome. It’s sparking fears that a global recession could be the end result of the trade war.

SQ Stock Is Vulnerable

Square stock took a bruising on Friday because the company is particularly vulnerable to anything that cuts consumer spending. Square’s primary sources of revenue are payment processing and point-of-sale hardware solutions for retailers, along with other businesses like small business loans and its Cash app.

All of these are vulnerable to anything that causes consumer spending to slow, whether that is more expensive goods or an outright recession.

The U.S. tariffs scheduled to kick in on Dec. 15 (should the trade deal fall through) are expected to hit American consumers hard, with cell phones, laptops, tablets and Chinese-made toys being subject to tariffs. The prospect of the trade war triggering an all-out recession is a worst case scenario, but that Chinese economic data makes it more plausible than ever.

If consumers slow their spending, transactions using Square technology will also slow, and that will hit Square revenue. The drop in SQ stock on Friday reflects the concern that we could be heading in that direction.

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