Tariff Turmoil: Nasdaq Hits Bear Market Amid Trade Wars

Tensions rise as Trump's tariffs impact the stock market, especially tech stocks. Nasdaq plunges into bear territory while investors reassess AI demand growth amid oversupply fears.

Date: 08-04-2025

AI Rating: 4

Market Reaction to Tariffs
President Trump's announcement of a two-step tariff strategy has resulted in significant market volatility, leading to a bear market for the Nasdaq Composite. The tariff on imports is causing a chain reaction with retaliatory tariffs from China, directly impacting high-exposure companies such as Apple, NVIDIA, and Tesla, causing sharp declines in their stock values.

Performance of the Nasdaq Composite
The Nasdaq Index fell by 5.8% on April 4 and saw a weekly decline of 8.6%. This downturn is reflective of a compounded effect of tariff fears and investor sentiment about tech valuations amid growing oversupply concerns in AI infrastructure. These concerns are coupled with observations by Alibaba's co-founder warning that the demand for AI services may not support the rapid investment in AI capabilities.

Implications on Earnings and Growth
Technology giants, heavily invested in AI, saw a decline in stock performance, with Apple down 7%, NVIDIA down 7%, and Tesla down 10%. The negative sentiment, combined with reduced demand for AI solutions, raises significant questions about future earnings potential for these companies. Investors should be cautious as these firms constitute nearly 20% of the Nasdaq-100.

P/E Ratio Concerns
Despite the selloff, the Nasdaq-100 has a high P/E ratio of 24 times estimated profits, above the two-decade average of 20 times. Analysts like Ben Reitzes suggest that although NVIDIA's valuations seem defensive at 23 times forward earnings, the higher market expectations for these tech stocks make them susceptible to declines if they fail to meet growth targets.

Outlook and Strategic Considerations
While the outlook appears bearish due to tariff impacts and oversupply in AI investments, the recent decline in valuations may present potential buying opportunities for seasoned investors. The moving averages of the Invesco QQQ Trust (ETF) show bullish indicators, yet caution is warranted given the current sentiment toward tech stocks.

Stocks: AAPL NVDA TSLA