Tech Sinks as Tariff Fears Take Center Stage

Major Index Performance (Wednesday): Dow Jones: -0.3% $S&P 500(.SPX)$ : -1.1% Nas $NASDAQ(.IXIC)$ : -2.0%

The market’s four-day winning streak came to an end as tariff fears sent investors back into risk-off mode.

Non-US Stocks Continue to Outperform

Q1 Performance:

• Non-US Stocks: +8.1%

• S&P 500: -2.9%

Q4 2024 Recap:

• Non-US Stocks: -8.8%

• S&P 500: +2.1%

Why it Matters:

• The outperformance isn't just a mean reversion—it reflects policy-driven headwinds for U.S. markets.

• U.S. small caps have been hit the hardest, reinforcing this trend.

Expect near-term U.S. underperformance, though long-term prospects remain positive.

Microsoft, Amazon, Nvidia: The Earnings Bellwethers

These three stocks make up 16% of the S&P 500 and are among Wall Street’s most recommended names.

Why they matter for Q1 earnings:

• Any sign of fundamental weakness in these giants could weigh heavily on the broader market.

• Investors will be watching for: Cloud & AI growth ( $Microsoft(MSFT)$ , $Amazon.com(AMZN)$ ) GPU demand ( $NVIDIA(NVDA)$ Margins & pricing power

Big Tech earnings will be the ultimate test for market sentiment in Q1.

Tariff Shock: 25% Auto Tariffs Coming April 3

Trump confirmed a 25% tariff on global automotive imports.

Tariffs

• This follows the April 2 “reciprocal tariffs” announcement on other goods.

• Automakers hoped for a delay, lower rate, or exemptions—but got none.

• 7M+ cars were imported to the U.S. in 2024.

• 50%+ of parts in U.S.-assembled vehicles come from Canada & Mexico.

• Massive cost increases could crush automaker profits and ripple across supply chains.

This is a potential inflationary shock—just as the Fed was getting comfortable.

Fed Warning: Tariff-Driven Inflation May Not Be “Transitory”

St. Louis Fed President Alberto Musalem:

• Tariff effects aren't just one-time price hikes—they can trigger second-round inflationary impacts.

• If fully implemented, proposed tariffs could:

  Increase U.S. effective tariff rate by 10%.

  Boost PCE inflation by up to 1.2 percentage points.

The Fed may have to rethink its rate-cut path if tariffs push inflation higher.

Rotation Watch: Health Care vs. Tech

Year-to-Date Performance:

• Tech: Underperforming as macro risks rise.

• Health Care: Leading as a defensive play.

• Outperforms during macro uncertainty.

• Less sensitive to tariffs & rate policy.

• More stable earnings outlook.

The Tech-to-Health Care rotation could persist into Q2 as uncertainty rises.

Final Thought: Near-Term Headwinds, Long-Term Questions

The market has gone from Fed-driven optimism to tariff-driven fear. Investors need clarity on: 1) Tariff details & exemptions (April 2-3 announcements). 2) Q1 Tech earnings & AI demand (MSFT, AMZN, NVDA). 3) Fed’s response to rising inflation risks.

Short-Term Outlook: Volatility ahead—markets are still digesting the full impact of tariffs.

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This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.