In This Article:
Key Points
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Tariffs have been the biggest wild card in the broader state of the economy.
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The U.S. and China agreed to a massive decrease in tariffs for the next 90 days as talks continue.
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Astute investors have an opportunity to get in on the artificial intelligence (AI) revolution at a discount.
Investors and consumers have been climbing a wall of worry lately. The imposition of tariffs and the trade war with China has sparked concerns about the potential to reignite inflation and pressure an already fragile economy. There has even been a growing chorus warning about the potential for a recession. However, some good news on the tariffs front broke Monday morning, fueling optimism about the future and driving a broad-based market rally.
With that as a backdrop, artificial intelligence (AI) chipmaker Nvidia (NASDAQ: NVDA) and semiconductor giant Broadcom (NASDAQ: AVGO) each jumped 4.5%, chipmaker Advanced Micro Devices (NASDAQ: AMD) rallied 5.3%, and chip foundry Taiwan Semiconductor Manufacturing (NYSE: TSM), commonly referred to as TSMC, soared 6.2%, as of 12:07 p.m. ET on Monday.
A check of all the usual suspects -- financial reports, regulatory filings, and changes to analysts' price targets -- found no company-specific news to account for the run-up. This suggests that investors were focused on the positive developments related to tariffs.
Progress on the tariff front
Word broke early Monday that the Trump administration had reached an agreement with China to bilaterally pause reciprocal tariffs over the next 90 days as a show of good faith while talks on a permanent accord continued. As a result, the U.S. temporarily lowered tariffs on Chinese goods to 30%, down from 145%. At the same time, China reduced tariffs on U.S. goods to 10%, from their previous rate of 125%.
The announcement came after a weekend meeting in Geneva, the first face-to-face talks between the two superpowers since the tit-for-tat imposition of tariffs began in early April.
Economists and retailers alike have been sounding the alarm that a prolonged trade war and increased tariffs could lead to supply chain disruptions and higher prices. Furthermore, consumer spending is the bedrock upon which the U.S. economy is built. If people begin spending less due to fears of an economic downturn, it could become a self-fulfilling prophecy.
Retailers had begun ordering products for the holiday season in December. However, reports suggest that imports have already declined dramatically since early last month, leading to expectations of higher prices and shortages of some products from China and elsewhere.