Tech tonic!

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

The clouds of trade-related economic uncertainty are dark and heavy, but world markets were bathed in sunny optimism on Thursday as upbeat Microsoft and Meta earnings suggested there may be life in U.S. 'Big Tech' yet. 

Meanwhile, debate continues to swirl on the fallout from the record hit to U.S. GDP from trade in the first quarter. Imports were the culprit, but exports won't be immune from the trade war going forward. More on that below, but first, a round-up of the main market moves.

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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Bullish outlooks and pledges to invest heavily in artificial intelligence from Meta and Microsoft on Wednesday followed similar guidance last week from Google parent Alphabet. And although the optimism was dented by Amazon and Apple on Thursday, investors are reminded that Silicon Valley won't stand idle in the face of China's push for tech and AI dominance.

The 'Magnificent Seven' have been clobbered in recent months as the emergence of Chinese AI startup DeepSeek cast doubt over bloated valuations and assumed omnipotence of U.S. 'Big Tech'.

The Roundhill 'Mag 7' exchange-traded fund lost a third of its value between December 18 and April 7. But Thursday's surge means it has rebounded 20% in the last three weeks, and is now back above its close on April 2 when U.S. President Donald Trump unveiled his sweep of global tariffs.

So is the Nasdaq, more than recovering the 13% losses it incurred in the days after 'Liberation Day'. The Dow is still 3% lower, but is on its longest winning streak in almost a year - eight days and counting. The S&P 500 is flat, having clawed back its 15% 'Liberation Day' decline.

It's a show of resilience, which in some ways is remarkable. The first quarter earnings season hasn't been all rosy, and dozens of companies have cut forecasts or removed guidance altogether; GDP contracted in the first quarter and the growth outlook is murky at best; and cracks are starting to appear in the labor market.

But perhaps reports of U.S. Big Tech's demise have been greatly exaggerated. LSEG estimates suggest the group's January-March earnings will rise 21.4% against 8.3% for the S&P 500's remaining 493 constituents.

And even taking into account their underperformance in recent months, the 'Mag 7' stocks' weighting in the S&P 500 index is still around 30%, down from a record 34% in January.

The question from investors now is whether the post-Liberation Day rebound has put these shares back into 'fair value' territory. Do they have more momentum, or not?

It's been a crowded trade for the last two years at least, and although investors have trimmed their positions this year, they will still be heavily long.     

Tech benefits more than most sectors from lower interest rates, so the recent slide in Treasury yields will have helped juice the recovery. That recent run snapped back abruptly on Thursday, as Treasury yields climbed as much as 7 basis points at the short end of the curve. 

This helped support the dollar, but the biggest mover in FX on Thursday was the yen, which posted its biggest fall this year after the BOJ held rates as expected but slashed its economic growth outlook.

Most central banks have preferred to take a 'wait and see' approach to the growth outlook in the face of heightened tariff uncertainty. But the BOJ stuck its neck out halved its growth forecast for fiscal year ending March 2026 to 0.5% from 1.1%.

It would appear that the BOJ's tightening cycle is over.

Net trade delivered a record blow to the U.S. economy in the first quarter, as U.S. companies ramped up imports to get ahead of the Trump administration's tariff tsunami.

While the focus is rightly on imports, it's also worth considering the export side of the ledger and the damage that could be caused by retaliation to Trump's trade war.

Imports exploded 41.3% in the first quarter, causing a net 4.8 percentage point drag on growth. That was the largest since records began in the 1940s. 

Tariffs on imports make goods coming into the country more expensive, which is why businesses gobbled up as many as they could during the quarter in anticipation of Trump's levies.

While a repeat on this scale in the second quarter is unlikely, imports are likely to remain a heavy drag on growth as firms stock up before the new duties on imports kick in.

Exports also rose in the January-March period, but by an unremarkable 1.8%. If history is any guide, that figure could start shrinking because of retaliation in response to Trump's tariff salvos. 

While dozens of countries are trying to strike deals with the U.S., that does not mean they will simply roll over, especially if Washington plays hard ball. Many will retaliate in kind, making U.S. goods more expensive and uncompetitive in the international market.

The Trump administration may not fully appreciate this risk. A 2021 working paper 'The Smoot-Hawley Trade War' by the National Bureau of Economic Research noted that Peter Navarro, then Director of Office of Trade and Manufacturing Policy and now a senior counsel to Trump, predicted that no country would retaliate against U.S. tariffs. 

"The evidence from the 1930s suggests it is a mistake, even for a country as wealthy and powerful as the United States, to assume that it can engage in a trade war with impunity," the paper concluded.

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