U.S. tech shares surge as trade fears rattle global markets

Global backlash to President Trump's tariffs

Since the February panic lows, American investors have enjoyed a relatively robust rebound. Especially if they've been focused on large-cap tech stocks like Amazon (AMZN), Netflix (NFLX), and Apple (AAPL). As a result, the tech-heavy Nasdaq Composite -- which suffered more than an 11 percent peak-to-trough decline from the January high -- is now within spitting distance of that record.

This has been fueled by a combination of some easing of the Federal Reserve's hawkishness, a relatively mild reaction in U.S. markets to President Trump's steel and aluminum tariffs, and hopes for stock buybacks and dividends resulting from the GOP's tax cut plan.

 That rebound has been confined to a few sectors, however. Industrial, utility, and transportation stocks are lagging badly. Outside the U.S., global averages are well below their recent highs earlier this year. It's not a stretch to imagine global investors are discounting the potential for a damaging trade war, and thus lowering their expectations for economic growth and profits for companies in these countries.

Since stocks fell sharply on February 9, the Nasdaq is up nearly 10 percent. Global stocks excluding U.S. shares are up just 3.8 percent. The Dow Jones Industrial Average is up 4.3 percent. The Dow Utilities Index is up 3.4 percent. And the Dow Jones Transportation Average is up just 3 percent.

By geography, Germany's DAX is up 0.8 percent. China's Shanghai Composite is up 0.8 percent. And Japan's Nikkei is down 2.4 percent.

BNP Paribas economist Paul Mortimer-Lee recently highlighted a research paper from Australian National University that forecast that a "minor" trade war would cut global GDP growth by 1 percent to 4.5 percent, with the U.S. losing 1.3 percent and China losing 4.3 percent.

While the direct impacts of the steel and aluminum tariffs is likely to be small, the greater risk is that Mr. Trump's action spurs retaliatory measures from trading partners and further countermeasures by the U.S. Such as the countervailing tariffs he's threatened against China, for instance.

European Commission President Jean-Claude Juncker has threatened to impose tariffs on American exports such as Harley-Davidson motorcycles, Kentucky bourbon and Levi's jeans. Overall, the European Union is reportedly preparing tariffs of 25 percent that would target about $3.5 billion worth of American goods.

Jason Goepfert at SentimenTrader warns that the lagging performance in the major Dow indices could trigger a "Dow Theory" sell signal should both the Dow Transports and Dow Industrials fall below their February lows.

While the signal hasn't been as scary in recent years, it previously augured major selloffs in 1929, 1937, 1962, 1987, 2002, and 2007.

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