By Angela Palumbo and Adam Clark
Amazon.com was leading the Magnificent Seven group of stocks on Monday as markets welcomed a truce on tariffs between the U.S. and China. Tech investors should keep in mind that there's still a long road ahead.
Treasury Secretary Scott Bessent said early Monday that the U.S. and China have agreed to lower reciprocal tariffs for 90 days. Amazon shares were up 7.4% on the news. That outstripped gains for fellow Mag 7 members Apple, Microsoft, Nvidia, Alphabet, Meta Platforms, and Tesla. The Roundhill Magnificent Seven exchange-traded fund, which gives equal weight to the group of stocks, was up 4.9%.
"With US/China clearly on an accelerated path for a broader deal we believe new highs for the market and tech stocks are now on the table in 2025 as investors will likely focus on the next steps in these trade discussions which will happen over the coming months," Wedbush analyst Dan Ives wrote on Monday.
It isn't hard to see why Amazon could be a beneficiary of a trade deal between the world's two largest economies. Many of the sellers on its e-commerce marketplace source their goods from China, and the reduction in tariffs will mean they can continue to do business.
Amazon investors may also be breathing a sigh of relief over the possibility that spending on advertising may continue to be strong. About 30% of Amazon's first-party merchandise is sourced from China, and Chinese advertisers spent around $8 billion on Amazon advertising in 2024, according to Raymond James estimates.
In recent weeks, Wall Street has been concerned that Asia-based advertisers were starting to show signs of weakness. The Trump administration removed a commonly used trade loophole called the de minimis exemption that allowed lower-cost imports to enter the U.S. without being subject to tariffs. Chinese companies, known for lower-priced items, may not want to put as much money into advertising if prices increase and consumers stop spending.
If tariffs remain lower than threatened, those price increases may not emerge, and spending might not wane.
In that scenario, other tech companies would also benefit. Meta and Alphabet both make a lot of money from advertising, and each of those tech giants said on their most recent earnings calls that they were starting to see Asia-based advertisers pull back on advertising. Snapchat parent Snap Inc., which makes almost all of its money from ads, withheld financial guidance in April due to economic uncertainty. That stock was up 7.3% on Monday.
Before investors get too excited, it is important to remember that the news is all very fresh. It will take some time for advertisers to go back to their pre-tariff strength, and with a temporary trade deal, there is still uncertainty as to what could come next.
The semiconductor industry was also performing well on Monday. Nvidia was up 3.7%, On Semiconductor was surging 9.6%, and Texas Instruments was climbing 8.4%. Wall Street was optimistic that the negotiations could lead to an outcome where electronic goods produced in China that use chips weren't taxed by the U.S. as heavily, and supply chains weren't as disrupted.
However, there is more to the chip sector that investors should watch. First, the U.S. has imposed export controls on chips as it seeks to become the winner of the AI race. The Trump administration exempted semiconductors and other electronic products from the reciprocal tariffs, opting instead to target chips specifically through sector tariffs in the future.
Secretary Bessent signaled those sector tariffs will still come, saying on CNBC on Monday that reciprocal tariffs have nothing to do with industry-specific tariffs for "strategic necessities" like semiconductors, steel, and some medicines.
While the market rebounds and tech stocks soar, it's important to remember that there is much more that's likely to come in the months ahead.
"This is a textbook recovery after the market's waterfall declines. Expect volatility as we approach the 90-day reciprocal tariffs deadline, " Gina Bolvin, president of Bolvin Wealth Management Group, wrote on Monday. She added that Monday's rally "illustrates why we tell our clients not to trade headlines."
Write to Angela Palumbo at angela.palumbo@dowjones.com and Adam Clark at adam.clark@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 12, 2025 12:26 ET (16:26 GMT)
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