Turkey recaptured Wall Street’s attention today, with a vengeance.

Turkey on Wednesday sharply boosted tariffs on U.S. imports including alcohol, cars and tobacco in retaliation for U.S. tariffs on Turkish steel. The major stock market averages plummeted.

The CBOE Volatility Index (VIX), the so-called “fear index,” today soared 13.07%, its biggest jump in more than a month.

Turkish President Recep Tayyip Erdogan issued a decree today that doubled his country’s tariffs on passenger cars to 120%, on alcoholic drinks to 140%, and on leaf tobacco to 60%. Tariffs were also doubled on goods such as rice, coal and cosmetics.

Concerns about slowing economic growth exacerbated investor pessimism. The global trade war is pushing up costs for manufacturers and builders, which fuels inflation and dampens activity.

Input prices for steel, aluminum, lumber, plywood, and a host of other raw materials are registering double-digit increases because of tariffs.

These adverse effects were confirmed today by the National Association of Home Builders, which reported that its monthly confidence index in August fell one point to 67, lagging the 2017 full-year average of 68. The August reading represents an 11-month low (see chart):

The housing market is a barometer of consumer sentiment and the overall economy. For most Americans, the home is their most valuable asset. A cooling housing market spells trouble.

One bright spot came courtesy of the retail sector. The U.S. Commerce Department reported today that retail sales increased 0.5% last month, greater than the expected 0.1%. Retail sales in July increased 6.4% from a year ago. But the good news was overshadowed by trade conflict with Turkey, which had eased yesterday but came roaring back.

The lose-lose trade war…

The worst part about this trade war? It amounts to pointless self-harm. The verdict of history is quite clear: Tariffs only make matters worse.

But world leaders apparently don’t read history; they just read their own press releases. So they continue to bully each other over trade, pounding their chests like silverback gorillas. Everyone loses.

Ankara imposed harsh tariffs today amid growing tensions with the U.S. over Turkey’s detention of a Christian American pastor.

The pastor, Andrew Brunson, is accused by the government of helping rebels who Turkish authorities say launched a 2016 coup attempt against Erdogan. On Wednesday, a Turkish court rejected the pastor’s appeal to be released from house arrest.

The Turkish lira has shed nearly 40% against the U.S. dollar this year, as investors worry about Erdogan’s erratic economic policies. But the lira today rose, after the central bank injected liquidity to shore up the currency.

Also boosting the lira was news Wednesday that Qatar has agreed to invest $15 billion in Turkey. This pledge follows a meeting between Qatari Emir Sheikh Tamim bin Hamad Al-Thani and Erdogan in Ankara today.

A sultan with swat…

Erdogan has moved Turkey away from secular democracy and toward dictatorial rule, whereby he promotes Islamic nationalism with iron-fisted determination. Turkey has become something akin to a sultanate.

Turkey is a key NATO ally and a major emerging market, but the country’s latter-day sultan has turned the economy into a shambles.

Erdogan has repeatedly insisted on lower interest rates, even though inflation is running high. Economic text books tell us that inflation calls for monetary tightening; Erdogan must have skipped economics class that day.

Turkey also is deeply in debt, which puts pressure on European banks that funded the country’s projects, many of which are patronage boondoggles.

But Turkey continues to wield enormous influence on world markets. The country straddles both East and West, serving as a gateway to new markets for Western companies. Many blue-chip manufacturers have placed big bets on Turkey, which boasts a skilled but inexpensive labor force. Industrial and bank stocks, many with extensive Turkish exposure, were among the hardest hit today.

Technology stocks also fell across the board today, after gaming and social media giant Tencent Holdings (OTC: TCEHY), the most valuable tech firm in China, reported a 3% decline in second-quarter profit. Tencent shares fell 6.55%.

Meanwhile, the U.S. dollar resumed its upward march, soaring to new 13-month highs and increasing pressure on commodities and emerging markets.

Today was a bad day for stocks. Think the sharp declines are over? Not by a long shot. The bull market turned nine years old in March, which is ancient by historical standards.

Since 1929, the U.S. stock market has undergone 25 bear markets, an average of one every 3.4 years. We’re overdue.

Interest rates are rising; bull runs are usually killed by monetary tightening. Inflation is stirring. And as we saw today, geopolitical risks refuse to abate.

The theater of the absurd that we saw unfold in Turkey today is a reminder: don’t get complacent. A stock market bloodbath is only an autocrat’s decree away.

Wednesday Market Wrap

• DJIA: 25,162.41 -137.51 (0.54%)
  
• S&P 500: 2,818.37 -21.59 (0.76%)
  
• Nasdaq: 7,774.12 -96.78 (1.23%)
  

Wednesday’s Big Gainers

• Canopy Growth (NYSE: CGC) +30.38%

Cannabis firm attracts large investment from beer maker.

• KMG Chemicals (NYSE: KMG) +15.13%

Specialty chemical maker targeted for buyout.

• Xinyuan Real Estate (NYSE: XIN) +8.15%

Real estate developer’s sales exceed guidance.

Wednesday’s Big Decliners

• Casa Systems (NSDQ: CASA) -22.56%

Software developer for cable industry misses on revenue.

• Macy’s (NYSE: M) -15.95%

Department store chain’s operating results disappoint.

• Hollysys Automation Technologies (NSDQ: HOLI) -11.13%

Automation systems provider’s earnings fall short.

Letters to the Editor

“Are e-cigs a lasting trend or a fad?” — Mike F.

The electronic cigarette industry is here to stay and growing rapidly. Battery powered e-cigs mimic smoking by applying a heating element that vaporizes nicotine-infused liquid. E-cigs are odorless and less expensive than traditional cigarettes. They’re also less regulated and, as of yet, not associated with deadly diseases.

Questions about investing in new technologies? Drop me a line: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.