The Fight For AI Supremacy
According to the betting markets, the odds of a recession
Overnight, have tanked from over 80% to just a fraction under 40%.
It is interesting to see such a development and speaks volumes to how volatile the tech markets are right now.
The V-shaped price action by the Nasdaq index ($COMPQ) perhaps forced the hand of decision makers.
Here we stand, only 6% from all-time highs after a vicious reversal to the upside.
I think it is fair to say that the belief in tech stocks has not corroded and is just resting.
Even though what was agreed was just a 90-day pause, the biggest takeaway is that the Americans aren’t willing to just blow the world order up.
The Chinese won’t just be moved to the side and switched in for Indians like a 6th man coming off the bench.
In fact, this signals that China has a big role to play in the upward trajectory of tech stocks, and that is why the tech index has exploded to the upside this morning.
Some of the tape is mind-boggling.
At the time of this writing, Amazon (AMZN) is up 8% and the Nasdaq is up over 4% in just ONE DAY.
To say this is a victory for tech is an understatement as the world’s two biggest economies unwound for now most of the tariffs they had imposed on each other since April in a tit-for-tat battle that was threatening to stoke U.S. inflation, crash China’s export engine, and upend the global economy.
The U.S. agreed to lower the base level of tariffs on most Chinese goods to 30%, from 145%, while China said it would cut its levies on U.S. products to 10% from 125%.
The U.S. tariff on many Chinese products will be higher than 30%. U.S. duties on steel, aluminum, and autos remain in place, as do some earlier tariffs on certain Chinese goods imposed during President Trump’s first term in office and that of former President Joe Biden.
Washington and Beijing agreed to keep the new tariff levels in place for 90 days, with the goal of working toward a broader deal on trade in further talks.
For China, an unrestrained trade clash with the U.S. would threaten millions of jobs tied to serving U.S. consumers and potentially worsen trade tensions with other countries wary of a surge in Chinese imports. China was also worried about losing access to some U.S. products it still needs, such as Boeing planes, aircraft parts, and certain chips.
In the short-term, I believe we are ready for a short squeeze higher.
The market was taken by surprise by the sudden announcement, and many companies were bracing for another onslaught of negative news.
In the next 60 to 90 days, I can easily see the US dollar popping higher, tech firms reforecasting higher revenue targets, and the Nasdaq coalescing around the positive energy to surge higher.
That’s not to say that everything is hunky and dory, we are literally just one tweet away for the market collapsing and going into a tailspin.
The risk levels have never been higher, and I would urge readers to keep positions small.
