With U.S. President Donald Trump insisting he won’t back down from the barrage of tariffs unleashed last week, market professionals are gaming out worst-case scenarios for the companies most exposed to the levies. What they’re expecting is grim.
The prospect of prolonged levies and the economic damage they will bring is so bleak for pricey technology stocks that Paul Nolte, market strategist and senior wealth manager at Murphy & Sylvest Wealth Management said he wouldn’t be surprised if some of the shares drop another 50 per cent. He cited high tech company valuations and the expected hit to profits from the tariffs on imports.
“If we see weaker economic data, we could see this selling continue for a while,” Nolte said. “We haven’t yet seen anything in terms of a negotiation or sign of when this could end.”
The Nasdaq 100 sank 3.9 per cent on Monday. It has dropped more than 14 per cent over the past three trading days, on track for its biggest three-day drop since March 2001.
The Nasdaq 100 suffered its worst week since 2020’s Covid-19 crisis and tech stocks have been underperforming every other sector in the S&P 500 over the past month and a half. Trump’s tariffs have weighed most heavily on groups like semiconductor and hardware makers where supply chains are reliant on overseas manufacturing. An index of semiconductor makers sank 16 per cent last week. Apple Inc., which makes most of its devices in China, tumbled 14 per cent. Dell Technologies Inc. sank 22 per cent.
Apple shed six per cent on Monday while Dell dropped 4.7 per cent. The Philadelphia Stock Exchange Semiconductor Index dropped 4.5 per cent.
If the tariffs continue for even just a month, it’s likely that the semiconductor supply chains will “freeze up” due to uncertainty and lower order rates, Citigroup analysts led by Christopher Danely wrote in a research note last week. In the case of a recession, the analysts wrote, chip stocks could fall at least another 20 per cent.
The impact from tariffs is “virtually impossible to assess completely given the length and geographic diversity of the semi supply chain,” they wrote.
Apple has made efforts to diversify its supply chain since Trump’s first term as president, but that is not likely to shield the company as tariffs hit an array of Asian countries where the company’s product are manufactured.
Rosenblatt analyst Barton Crockett estimates the iPhone maker could face some US$40 billion in tariff related costs, which, if they are not passed along to customers, would wipe out nearly a third of profits.
Howard Chan, chief executive officer at Kurv Investment Management, says he could easily see Apple falling another 10 per cent as a result of the tariffs and a likely decline in consumer demand. In a worst case scenario, where Apple isn’t able to secure the kind of exemption it got during Trump’s previous trade war, Chan thinks all bets are off.
“We could be looking at a situation where everything goes wrong, and determining the bottom of something like that is extremely difficult,” Chan said.
Even after the Nasdaq 100’s slump, valuations in the benchmark are still elevated. The index is priced at 28 times trailing profits, compared with an average over the past decade of 25 times.
“Tech is rightfully in the eye of the storm. It is not only the most exposed in terms of the percentage of goods that get imported, but it is also the most exposed in terms of revenue generated outside the U.S.,” said Anastasia Amoroso, chief investment strategist at iCapital. “Investors have a hard time baking that into earnings expectations and outlooks, and that’s why it should continue to bear the brunt.”
Jeran Wittenstein and Ryan Vlastelica, Bloomberg News
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