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The 'Magnificent Seven' have been clobbered in recent months as the emergence of Chinese AI startup DeepSeek cast doubt over bloated valuations and the assumed omnipotence of U.S. 'Big Tech'.

The Roundhill 'Mag 7' exchange-traded fund lost a third of its value between December 18 and April 7. But Thursday's surge means it has rebounded 20% in the last three weeks, and is now back above its close on April 2 when U.S. President Donald Trump unveiled his sweep of global tariffs.

So is the Nasdaq, more than recovering the 13% losses it incurred in the days after 'Liberation Day'. The Dow is still 3% lower, but is on its longest winning streak in almost a year - eight days and counting. The S&P 500 is flat, having clawed back its 15% 'Liberation Day' decline.

It's a show of resilience, which in some ways is remarkable. The first quarter earnings season hasn't been all rosy, and dozens of companies have cut forecasts or removed guidance altogether. GDP contracted in the first quarter, the growth outlook is murky at best and cracks are starting to appear in the labor market.

But perhaps reports of U.S. Big Tech's demise have been greatly exaggerated. LSEG estimates suggest the group's January-March earnings will rise 21.4% against 8.3% for the S&P 500's remaining 493 constituents.

And even taking into account their underperformance in recent months, the 'Mag 7' stocks' weighting in the S&P 500 index is still around 30%, down from a record 34% in January.

The question from investors now is whether the post-Liberation Day rebound has put these shares back into 'fair value' territory. Do they have more momentum, or not?

It's been a crowded trade for the last two years at least, and although investors have trimmed their positions this year, they will still be heavily long.

Tech benefits more than most sectors from lower interest rates, so the recent slide in Treasury yields will have helped juice the recovery. That recent run snapped back abruptly on Thursday, as Treasury yields climbed as much as 7 basis points at the short end of the curve.

This helped support the dollar, but the biggest mover in FX on Thursday was the yen, which posted its biggest fall this year after the BOJ held rates as expected but slashed its economic growth outlook.

Most central banks have preferred to take a 'wait and see' approach to the growth outlook in the face of heightened tariff uncertainty. But the BOJ stuck its neck out and halved its growth forecast for fiscal year ending March 2026 to 0.5% from 1.1%.

It would appear that the BOJ's tightening cycle is over.

After record import blow to U.S. GDP, beware export sucker punch

Net trade delivered a record blow to the U.S. economy in the first quarter, as U.S. companies ramped up imports to get ahead of the Trump administration's tariff tsunami.

While the focus is rightly on imports, it's also worth considering the export side of the ledger and the damage that could be caused by retaliation to Trump's trade war.

Imports exploded 41.3% in the first quarter, causing a net 4.8 percentage point drag on growth. That was the largest since records began in the 1940s.

Tariffs on imports make goods coming into the country more expensive, which is why businesses gobbled up as many as they could during the quarter in anticipation of Trump's levies.

While a repeat on this scale in the second quarter is unlikely, imports are likely to remain a heavy drag on growth as firms stock up before the new duties on imports kick in.

Exports also rose in the January-March period, but by an unremarkable 1.8%. If history is any guide, that figure could start shrinking because of retaliation in response to Trump's tariff salvos.

While dozens of countries are trying to strike deals with the U.S., that does not mean they will simply roll over, especially if Washington plays hard ball. Many will retaliate in kind, making U.S. goods more expensive and uncompetitive in the international market.

The Trump administration may not fully appreciate this risk. A 2021 working paper 'The Smoot-Hawley Trade War' by the National Bureau of Economic Research noted that Peter Navarro, then Director of Office of Trade and Manufacturing Policy and now a senior counsel to Trump, predicted that no country would retaliate against U.S. tariffs.

"The evidence from the 1930s suggests it is a mistake, even for a country as wealthy and powerful as the United States, to assume that it can engage in a trade war with impunity," the paper concluded.

'CATASTROPHIC'

Of course, the world today is unrecognizable from that of 1930 when President Herbert Hoover signed into law the infamous 'Smoot-Hawley Tariff Act', which raised tariffs on thousands of imports into the United States.

The manufacturing process today is global, complex and much more sophisticated. Some 40% of U.S. imports are inputs used in the production of other goods and services. Trade was a lot more straightforward in the 1930s.

But this protectionist measure - which the U.S. Senate's website describes as "among the most catastrophic acts in congressional history" - is widely cited as a key contributor to deepening the Great Depression, partly because many of America's trading partners retaliated in kind and global trade nose-dived.

The NBER paper found that U.S. exports to countries that 'protested' the Smoot-Hawley import tariffs fell by 15-22%, while exports to 'retaliators' plunged by 28-33%. And if we focus on key exports, those from 'retaliators' and 'protesters', in aggregate, fell by an average of 22.5% after Smoot-Hawley.

Canada was a particularly aggressive 'retaliator' in the 1930s. And nearly 100 years later, under the leadership of newly elected Prime Minister Mark Carney, it could once again be among the world's most spirited fighters in the trade war with Washington.

Canada is the USA's number one export market, and goods trade between the two countries last year totaled $762 billion. The Canadian Chamber of Commerce estimates that 3.7 million jobs across both nations are tied to that bilateral trade.

ELASTIC DEMAND

The U.S. is currently the world's second-largest global exporter, but net exports usually subtract from growth because the U.S. has run a trade deficit for the past 50 years. Last year, goods exports totaled $2.1 trillion, and imports totaled $3.3 trillion.

Trump believes his tariffs will slash the deficit, revive U.S. industry, and bring back the manufacturing jobs that have been lost over the decades. But if U.S. companies could produce more cheaply at home, they would. And it takes years to set up factories and production lines, so even if Trump's policies do bear fruit, it won't be for a long time.

Once the dust settles and trade deals have been reached, the levels of duties will probably have come down from what Trump is currently threatening. But tariffs will likely still be the highest in decades, and many countries will almost certainly have reacted in kind, for political and economic reasons.

"Foreign demand is elastic, countries can substitute for American goods. Our export growth will slow down," says economist John Silvia.

So net exports will almost certainly remain a drag on growth for some time to come. The only question is how big that drag will be.

What could move markets tomorrow?

* Euro zone inflation (April, flash estimate) * Euro zone PMIs (April) * U.S. non-farm payrolls (April) * More Q1 earnings Friday, including Exxon

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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(By Jamie McGeever; Editing by Nia Williams)