The news of a temporary truce in trade between China and the United States over punitive tariffs led to a rally among US technology megacap stocks.
Amazon, Apple, Meta (Alphabet), Microsoft, Nvidia and Tesla, the group known as “The Magnificent Seven”, rose sharply during pre-market trading. Amazon and Tesla recorded the biggest gains.
Amazon.com grew by 8.2%, while Tesla climbed by 8.06%. Both companies outperformed the rest of their group.
Apple gained 6%. Meta gained 5.67%. Nvidia was up 4.33%. Alphabet advanced 2.53%. Microsoft added 2.11%.
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Washington and Beijing have agreed to reduce tariffs by 90 days while continuing negotiations.
China and the US have agreed to reduce tariffs for reciprocal reductions.
In premarket trading, the Roundhill Magnificent 7 ETF rose by 5.6%. It offers an equal amount of exposure to all seven stocks.
AMZN stocks jump on Monday
Amazon was the leader of the rally, as investors saw the ease in trade tensions to be particularly advantageous to its business model which is heavily dependent on Chinese advertising and imports.
Amazon sources roughly 30% of its inventory from China. Many of the sellers in their marketplace also heavily rely on Chinese suppliers.
Tariffs that are lower will protect profits and stabilise product availability.
Analysts at Raymond James estimate that Chinese advertisers will spend close to $8 billion in Amazon’s marketplace by 2024. This makes the region a major contributor to Amazon’s revenue streams.
The truce will also support Amazon Web Services’s cloud computing arm in its investment into artificial intelligence, which is a major growth area.
TSLA shares jump; the company regains its $1T valuation
Tesla’s stock also surged. It regained a valuation of over $1 trillion, which had not been seen since February.
Tesla is a major player in the Chinese market. It has a significant presence there, as both a producer and shopper base.
China will account for 22 percent of Tesla’s revenues in 2024.
Analysts say that, despite the fact that Tesla’s Chinese supply chain is localized and therefore less affected by tariffs, consumer sentiment has shifted in favour of domestic rivals such as BYD.
Tesla hopes to recover ground lost in China with the ease of tensions.
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Citi Data shows that Tesla sales in China dropped 15% on an annual basis in the first 5 weeks of Q2.
This rally reflects the enthusiasm of investors for Tesla’s robotaxi service that is scheduled to be launched in Austin, Texas in June.
Elon Musk, CEO of Tesla Motors Inc., reaffirmed this timeline in the Q1 earnings conference call. This is a further source of optimism.
As new information becomes available, this post Amazon and Tesla Drive Magnificent Seven Surge on US-China Trade Deal may be updated.
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