Nasdaq Put to the Test with ASML Earnings

Tech firms have received a reprieve amid the ongoing trade tensions, but it may be short-lived, casting doubt on the recent rally ahead of earnings, with ASML taking centre stage.

Exceptions, But for How Long?

Markets have been on a tear since last Wednesday when US President Donald Trump announced a 90-day pause in his global reciprocal tariffs plan, except for China. On Friday, US Customs also clarified that electronics and semiconductors would not be subject to the 145% tariff on products originating from China, a decision previously communicated on April 5 but overshadowed by the escalating trade tensions with China.

China reciprocated by exempting US chipmakers that outsource manufacturing from retaliatory tariffs. But while markets welcomed this apparent détente, Trump threatened to impose tariffs on the newly-exempt components over the weekend, citing national security concerns and hinting at potential announcements this week.

Market Reaction, Earnings

For now, markets are celebrating the prospect that major tech companies have been temporarily spared from the brunt of the tariffs. However, the measures are expected to cast a shadow on the AI-backed tech industry, as ancillary costs for building data centres are anticipated to rise while the tariffs are in effect. Still, some in Silicon Valley believe the high tariff levels are a negotiation tactic, and a deal will be reached to normalise prices, potentially explaining the Nasdaq's resilience despite the threat of additional tariffs.

ASML, a Dutch-based Nasdaq constituent, will be the first major tech company to test the new market conditions when it releases earnings before the markets open on Wednesday. Analysts expect the company to report an 85.8% increase in its EPS to €5.78 per share in the first quarter, driven by a 47% increase in sales to €7.77 billion. ASML has been consistently reducing its reliance on China as its primary consumer, and the tariffs could further increase demand for its semiconductor manufacturing equipment as companies seek to reshore operations. However, the company's shares have underperformed this year, weighed down by a broader shift away from tech stocks perceived as riskier due to higher valuations in the current market environment.

Nasdaq Pennant Hints at Breakout

The Nasdaq appears to be forming a pennant pattern after peaking at 19260, suggesting upside potential. A breakout above 20,300 and 21,300 could pave the way for a rally towards the 20,250 record high, while a failure to hold the 18K support could expose the index to a retest of the 16,320 bottom and potentially new lows.

Source: SpreadEx / Nasdaq

Key Takeaways

While tech has received a reprieve from the escalating trade tensions, the potential for further tariffs casts uncertainty over the recent rally. With ASML expected to kick off the tech/AI earnings season, market participants will want to monitor the impact of the trade war on the industry to get clues about whether sentiment should remain cautious amid the threat of additional tariffs.