Weekly Insights: U.S. Stocks Teetering-What’s the Endgame of Trump’s Tariffs?

Performance of Global Equity Indices(in US Dollar)

Source: Bloomberg, Tiger Brokers

Key Market Themes

NVIDIA’s Earnings Perform Brilliantly, Yet Its Stock Faces A Sell-Off—Has The Narrative Of The U.S. Stock Market Come To An End?

• Last week, NVIDIA released its latest financial report, showing quarterly revenue and profits surging by 78% and 80% year-over-year, respectively—once again significantly exceeding market expectations. Looking solely at the performance numbers, NVIDIA’s results were nearly flawless. The only blemish was a sequential decline in gross margin, widely anticipated due to higher costs associated with its next-generation "Blackwell" chips.

• Yet, despite these stellar figures, NVIDIA’s stock surprisingly fell after the earnings announcement, plunging nearly 8% in a single day. This sell-off also triggered broader declines across the semiconductor sector and the Nasdaq, prompting investors to question whether the rally in U.S. technology stocks might be coming to an end.

  We believe that the fundamental backdrop for U.S. equities hasn't shown signs of systemic deterioration yet. Although recent expectations around inflation and economic growth have been quite negative, corporate earnings remain resilient. Notably, the S&P 500 recorded a 17.8% year-over-year increase in profits during the 2024 Q4 earnings season, marking the highest growth rate since 2021.

• However, there are indeed significant challenges at the macro and sentiment levels. Uncertainties surrounding tariffs, politics, economic conditions, and inflation have continuously bombarded investors. Furthermore, former President Trump's unpredictable behavior has notably disrupted market sentiment. From a fund-flow perspective, global hedge funds have consistently reduced their exposure to U.S. technology stocks over recent weeks.

  In our view, while the underlying fundamentals of U.S. equities have not weakened, macroeconomic uncertainties remain unresolved. A surprisingly positive macroeconomic data point is urgently needed to reverse current anxious sentiment.

Source: Bloomberg, Tiger Brokers

Comparing Trump's Tariff Policy to the McKinley Era: How Will It Evolve?

• Recently, President Trump unexpectedly announced that a 25% tariff on imports from Canada and Mexico would take effect immediately on March 4, along with an additional 10% tariff on Chinese imports. This news caused a sharp plunge in U.S. stocks, strengthened the dollar, and led to widespread market panic. While many had previously viewed Trump's tariff threats as mere negotiating tactics, we repeatedly warned against underestimating his determination on tariffs.

• At his inauguration in January, Trump notably praised former President William McKinley, who famously pursued prosperity through tariffs. Thus, examining McKinley's tariff policies can help us better understand Trump’s own approach. In brief, in 1897, during the tail end of an economic depression, McKinley significantly raised average tariff rates to nearly 50% through the Dingley Tariff Act. This measure boosted domestic industries and made tariffs the federal government's primary source of revenue. It also helped the U.S. economy recover rapidly, quickly generating trade surpluses.

• Similar to over a century ago, Trump advocates tariffs under the banner of protecting the American economy and prioritizing America-first trade policies, aiming to reshape global trade patterns and bring manufacturing back home. Trump initially implemented tariff hikes during his first administration, but these measures were ineffective; instead of reducing the trade deficit, it reached record highs by the end of his term.

• However, we must acknowledge that today's economic environment is fundamentally different from McKinley’s era. Under McKinley, the U.S. economy was industrial-based and at the bottom of an economic cycle, allowing high tariffs to nurture domestic competitiveness without triggering widespread inflation, especially given the gold standard. Today, however, America is a consumption-driven, mature economy situated precariously at the peak of an economic cycle. Under a highly specialized global division of labor, increased tariffs will directly translate into higher costs borne by American consumers. Thus, while we do not doubt Trump’s determination regarding tariffs, we must remain cautious of their potential economic damage, including increased risks of recession.

Source: Tiger Brokers