Wall Street has been in a wavering mode this week due to the tariff fatigue. The Nasdaq has dropped more than 4% week to date, while the Dow and S&P 500 have slid around 2.9% and 3.6%, respectively. All three are on way for their worst week since September 2024.
Market Turmoil Amid Tariff Uncertainty
Thursday’s market declines followed the implementation of U.S. tariffs on Canadian, Mexican, and Chinese imports. In response, Canada and China imposed retaliatory levies, while Mexico announced plans to introduce countermeasures over the weekend.
However, President Trump soon announced a one-month tariff exemption for U.S. automakers that comply with the U.S.-Mexico-Canada Agreement (USMCA). However, the news failed to generate enough market enthusiasm, as uncertainty surrounding the policy persisted.
Investor Concerns Deepen Amid Treasury Comments
Market anxiety further intensified Thursday afternoon after Treasury Secretary Scott Bessent voiced support for tariffs, raising doubts about the administration’s willingness to compromise on the contentious policy. Investors, already confused by shifting policy statements, showed signs of fatigue as uncertainty remained in place.
Nasdaq in Correction Territory
The Nasdaq Composite tumbled 2.6% on Mar. 6, 2025, closing the session in correction territory. The decline in the tech-heavy Nasdaq was driven by more than just tariff tensions. DeepSeek and Alibaba’s (BABA) rise in the artificial intelligence world was the main cause behind the Nasdaq’s pain.
Investors should note that Alibaba recently announced that itintroduced the QwQ-32B model, an AI system that rivals DeepSeek but requires only a fraction of the data (read: Alibaba's Stock Surges on AI Breakthrough: ETFs in Focus).
An equal-weighted basket of China’s seven tech heavyweights including Alibaba Group Holding Ltd. and Tencent Holdings Ltd. has gained more than 40% this year. That compares with an about 10% decline in an index of the Magnificent Seven stocks, whose slump has also pushed the Nasdaq 100 Index to the brink of a correction.
Against this backdrop, what should be your stance on Nasdaq and its related exchange-traded funds (ETFs)? Should you dump them or buy the dip? Below we highlight a few reasons that will tell you why you should gobble up Nasdaq shares now.
Decline of Treasury Bond Yields
The Trump Administration has been advocating for lower interest rates for months. While the Federal Reserve operates independently, rising rate cut probabilities indicate that Trump’s tariffs could pressure Fed Chair Jerome Powell into action. The likelihood of a rate cut in May now stands at 54% and continues to climb.
Q1 to See Economic Contraction?
Economic data for the first quarter of 2025 suggests a potential contraction, according to the Federal Reserve Bank of Atlanta's GDPNow tracker, as quoted on CNBC. The model now predicts a 1.5% decline in GDP for the January-to-March period, a sharp decline from its earlier projection of 2.3% growth. The downward revision follows weaker-than-expected consumer spending in January, worsened by severe weather conditions. If the economy slows, the Fed may respond by cutting rates more aggressively. And any monetary easing measures would be beneficial for the growth-focused Nasdaq index.
Does a One-Month Auto Tariff Pause Suggests Potential for a Tariff Resolution?
Although Trump claims he wants tariffs to remain in place indefinitely, his recent actions suggest otherwise. He is probably using tariffs as a negotiating tool to secure more favorable trade deals for the United States. In the meantime, signs of a potential resolution are starting to emerge. China also called for ‘peaceful coexistence’ with the United States despite differences, per CNBC.
Could the Mag-7 Regain Their Previous Glory?
A $439 billion surge in Chinese tech mega-caps this year has outpaced their once-dominant U.S. counterparts, and many investors believe this momentum could continue. But then, big tech valuations have come down this year, with Microsoft a notable standout. Moreover, any significant AI breakthrough is likely to trickle down to Mag-7 stocks sooner or later.
Rosenblatt analysts see potential gains for tech giants Meta (META), Apple (AAPL), and Amazon (AMZN), despite DeepSeek breakthrough, as quoted on investing.com. Meta could benefit by integrating DeepSeek’s advances into Llama. Apple may leverage China’s AI progress to enhance localized features.
Meanwhile, Amazon recently announced a $100 billion investment in AI infrastructure for 2025, with one-fourth allocated to e-commerce operations. While focusing on cost-cutting in recent years, Amazon continues to expand its data center infrastructure.
ETFs in Focus
If you have a strong stomach for risks, you can buy the dip with exchange-traded funds (ETFs). Nasdaq-based ETFs include Invesco QQQ Trust QQQ, Direxion NASDAQ-100 Equal Weighted Index Shares QQQE, and Invesco NASDAQ 100 ETF QQQM.
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Invesco QQQ (QQQ): ETF Research Reports
Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE): ETF Research Reports
Invesco NASDAQ 100 ETF (QQQM): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
