MAG7 Valuation Pullback: Buy or Wait?

Due to market concerns and pressure from various parties, Trump authorized a 90-day tariff suspension for certain countries, significantly reducing tariffs to 10% during this period.

Benefiting from this positive news, the S&P 500 saw its largest gain since 2008 and the third-largest daily increase since WWII. The Nasdaq rose 12%, marking its second-largest gain in history, narrowing the gap to 2% from before Trump's tariff announcement.

U.S. stock trading volume hit a historic high, exceeding 30 billion shares traded in a single day for the first time. MAG7 performed exceptionally well, with the seven companies' market value increasing by an astonishing $1.85 trillion in one day, breaking previous records.

MGB7 Valuations Shrink Following Turbulent Market Fluctuations

During the bull market of the past two years, the high valuation levels of tech stocks have been a constant concern, especially as narratives of stagflation and recession gained traction. Valuation compression seemed inevitable.

Following March's downward trend and April's tariff war volatility, the Mag7's forward P/E ratios have compressed, with all now below their 5-year average forward P/E. Google and $Meta Platforms, Inc.(META)$   currently have the lowest valuations among the group.

Considering expected growth rates, BofA data shows $NVIDIA Corp(NVDA)$   as the most undervalued from a PEG perspective.

Apple, with the highest market cap, has fallen more than the S&P 500 year-to-date due to tariff impacts. After the pullback, its forward P/E has dropped to 27x.

BofA report notes that historically, when Apple's P/E is below 25x, its stock tends to perform well over the next 3-12 months. Specifically, Apple's average gains after reaching a P/E below 25x are 7%, 8%, 14%, and 17% for 3, 6, 9, and 12 months, respectively. While the stock may fall 5-11% in the next 3 months, potential gains range from 11-26%.

Trade Tensions Subside, Yet Economic Challenges Loom Large

Despite Trump's 90-day suspension of last week's "reciprocal" tariffs to allow negotiations, the high-tariff reality remains largely unchanged.

JPMorgan notes that the 10% general tariff is still effective, with the average U.S. tariff rate at 25%, slightly higher than last weekend. They estimate an $860 billion tax burden increase, about 2.5% of GDP, without considering substitution effects. JPMorgan believes the current trade war is "just the end of the beginning," far from over.

Citigroup agrees that the 90-day pause "isn't as useful as it sounds." They calculate that the U.S. average effective tariff rate has increased by about 21 percentage points since the year's start, considering the 10% base tariff, new tariffs on specific countries, and industry-specific tariffs.

Goldman Sachs previously reported that MAG7 companies have significantly higher foreign revenue proportions than the remaining 493 S&P 500 companies and small-cap stocks, emphasizing the need to monitor tariff-related supply chain risks.

Meanwhile, high tariffs and ongoing policy chaos, combined with stock market losses and confidence blows, cast a shadow over the economic outlook for the US and globally.

JPMorgan maintains a 60% probability of U.S./global recession (40% non-recession, including potential further tariff retractions). They view the current tariff impact as 7.5 times that of the 2018-19 trade war.

In their base scenario, JPMorgan predicts a "shallow and brief" U.S. recession in late 2025.

Citigroup focuses on short-term dynamics from the 90-day tariff pause. They expect a Q2 import surge as businesses rush purchases, potentially dragging Q2 GDP growth. This may be partly offset by increased Q2 consumer spending, with a potential Q3 slowdown. Business uncertainty remains high, possibly prolonging hiring and investment pauses.

Bill Gross expresses concern over stock market volatility and its dependence on Trump's decisions. He suggests previously "foolproof" money-making methods may no longer be so, leading to more cautious investor attitudes. This shift could result in lower P/E ratios and returns for U.S. stocks.

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