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Stocks surged on Monday as the U.S. and China announced a deal to temporarily reduce their high reciprocal tariffs, leading to much optimism that a global economic recession may be avoided.
Easing an ongoing trade war, the U.S. is cutting tariffs on China to 30% from 145%, with China reducing tariffs on U.S. goods to 10% from 125%. The agreement will last 90 days, as the two sides work on building a sustainable, long-term trade relationship.
The S&P 500 rose +3% in today’s trading session, with the Nasdaq spiking over +4%, as investors flock to big tech stocks that had sold off during rising trade tensions.
The Mag 7
At the center of what has been a historic market rebound are the mega-cap big tech stocks, with Apple AAPL, Amazon AMZN, Meta Platforms META, and Tesla TSLA leading the market gains on Monday and up over +6% respectively.
It’s likely that analysts may become more bullish on Apple’s short-term outlook as most of the electronic giant’s production comes from China.
A continued run-up in Apple, Amazon, and Meta stock looks fundamentally plausible, but it’s noteworthy that Tesla lands a Zacks Rank #5 (Strong Sell) based on a trend of declining earnings estimate revisions. Suggesting now may be a good time to fade the rally in Tesla stock is that TSLA has spiked +25% in the last month. Furthermore, Tesla has the highest P/E valuation among the Mag 7 at 161.4X forward earnings, with Alphabet GOOGL being the cheapest at 16.2X.
Nvidia NVDA and Microsoft MSFT have started to gain nice momentum as well, although the latter was only up +2% today. Still, Microsoft is the only Mag 7 stock that currently has a buy rating with a Zacks Rank #2 (Buy) while the others all land a Zacks Rank #3 (Hold) outside of Tesla’s strong sell rating. This comes as fiscal 2025 EPS estimates for Microsoft are up 2% over the last 60 days, with FY26 EPS estimates up 1%.
Image Source: Zacks Investment Research
Alibaba & Tencent
Optimistically, Chinese tech stocks have already benefited from higher investor sentiment before the tariff truce with the U.S., as Chinese President Xi Jinping has been more supportive of their independent growth. With regulatory issues being less of a concern to investors, Alibaba BABA and Tencent TCEHY are two Chinese tech stocks to pay attention to and currently sport a Zacks Rank #2 (Buy).
Their ADR’s (American Depository Receipts) have been two of the top performers on U.S. stock exchanges this year, with BABA soaring nearly +60% year to date and TCEHY up over +20%. The strong price performance has been due to their artificial intelligence expansion, leveraging AI to enhance efficiency, reduce costs, and improve customer experience, as Alibaba has seen higher e-commerce sales, and Tencent has benefited from growth in its gaming and cloud services.