The U.S.-China trade war seemed to ease on Oct 11 after the high-level trade talk pointed toward a “phase one” deal to be signed in November. However, terms worsened as geopolitical tension cropped up and dampened investors’ sentiments.
But, the Trump administration’s positive comment on the trade front on Oct 21 seems to have cheered up investors. With major benchmarks trending north, it is a good time to invest in trade-sensitive tech stocks as they seem to grow with the advancement of healthy trade between the two economic giants in the world.
Optimism on Trade Front
A sign of relief came on Oct 21 after a week-long roller-coaster ride, due to weak economic data and pessimism over rising geopolitical tension. President Donald Trump told reporters “the deal with China (is) coming along very well” and also claimed that U.S. tariffs have taken a toll on China’s economy and impacted the supply chain.
A series of good news followed after Trump’s comment. U.S. Trade Representative Robert Lighthizer reported that the administration aims to finalize the “phase one” deal first, before the Asia-Pacific Economic Cooperation meeting, which is scheduled on Nov 16 and 17 in Chile.
White House adviser Larry Kudlow also added to the optimism in his report saying, “tariffs scheduled for December could be withdrawn if talks go well.” China on the other hand said they will work with the U.S. administration to address each other’s core concerns.
On Oct 15, IMF had downgraded the global economic growth to 3%, the slowest in a decade. It had warned of worse consequences if the U.S.-China trade war continues. Hence, any news of easing trade war induces optimism among investors and boosts markets.
The positive effect could be clearly seen as the trade-sensitive technology sector of the S&P 500 rose 1.1%, pushing the major benchmark to notch its first close above 3,000 since Sep 18.
Why Tech Stocks Suffered the Most in Trade War
Tech stocks have been bearing the weight of the prolonged trade war between the United States and China. U.S. companies that are involved in memory chips, semiconductors, peripherals and software licenses business are impacted deeply with Chinese companies being blacklisted and increase in tariffs.
A major customer of U.S. tech companies, Huawei Technologies, purchases around $11 billion worth the foresaid goods every year. With the company being blacklisted, American firms are not finding customers for their products.
Chip manufacturers like Texas Instruments and Nvidia had seen stocks declining nearly 5% in a single day due to tariff war and loss of customers. Tech giants like Apple had to suffer revenue loss as increased tariffs hiked the price of iPhones and other devices.
However, the first sign of relief for tech stocks came on the night of Oct 9, with Trump’s approval to issue licenses to some U.S. companies, permitting them to sell non-sensitive products to Huawei.
Even though there is no news that the blacklisting will be removed any time soon, tech stocks seem to jump with the tariff rise being held off. After the high-level talks on Oct 11, U.S. administration agreed to cancel the tariff hike scheduled on Oct 15 on $250 billion of Chinese good. This brought in relief to the distorted supply chain boosting sentiments of both tech companies and investors.
5 Tech Stocks to Buy Now
With Trump and his administration showing optimism about the progress in trade talks, the technology sector can breathe a sigh of relief. It is a good time to invest in tech stocks as cost will be low and shares will gradually rise with further easing in trade war.
We have shortlisted five tech stocks that flaunt a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Alphabet Inc. GOOG is a publicly traded technologycompany that provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, and commerce and hardware products.
The company’s expected earnings growth rate for the current year is 12.9%, which is above the industry’s projected rally of 1.9%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days.
Advantest Corporation ATEYY is a publicly traded company that supplies automatic test equipment to the semiconductor industry. The company’s expected earnings growth rate for the next year is 29.1%, above the industry’s projected rally of 26.1%. The Zacks Consensus Estimate for current-year earnings has improved 27.9% over the past 60 days.
Cirrus Logic, Inc. CRUS is a publicly traded company that develops, manufactures and markets analog, mixed-signal, and audio DSP integrated circuits. The company’s expected earnings growth rate for the current year is 5.7%, in contrast to the industry’s decline of 0.5%. The Zacks Consensus Estimate for current-year earnings has improved 2.6% over the past 60 days.
Itron, Inc. ITRI is a publicly traded technology company that supplies a wide range of meter communication systems, including networks and communication modules, software, devices, sensors, data analytics and services. The company’s expected earnings growth rate for the current year is 9.4%, which is above the industry’s projected rally of 4.3%. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the past 60 days.
Globalstar, Inc. GSAT is a publicly traded technology company that offers satellite voice and data services to commercial and recreational users. The company’s expected earnings growth rate for the next year is 400%, which is above the industry’s projected rally of 21.5%. The Zacks Consensus Estimate for current-year earnings has improved 75% over the past 60 days.
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