Tech Stocks Rally Ahead of FOMC amid TikTok Deal

The S&P500 and tech-heavy Nasdaq (NQ) extended to record highs on Monday, 15 September, as the US and China met in Madrid, where they agreed on a framework deal for TikTok ahead of a US ban. Despite AI-related enthusiasm pushing markets to new heights, with markets nearly certain of a 25 basis point interest rate cut by the Fed at this Wednesday’s FOMC, AI leader Nvidia (NVDA) declined after China accused the company of violating antitrust laws.

US President Donald Trump and Chinese President Xi are set to talk on Friday, 19 September, to confirm a TikTok agreement. Trump. Trump pushes G7 countries to coordinate higher sanctions on China for purchasing oil (CL) from Russia. The two officials are expected to discuss trade and extend the tariff truce deal beyond its initial November expiration.  

TL;DR

• The Nasdaq 100 and S&P 500 hit record highs amid TikTok deal progress and Fed rate cut expectations. 

• Tesla and Alphabet surged while Nvidia fell on the China antitrust probe. 

• Markets seem to be optimistic despite geopolitical tensions.

What Drove Nasdaq to New Records?

The Nasdaq extended to new records as AI continues to attract interest, with Oracle’s (ORCL) blowout cloud computing forecast rejuvenating the rally. Oracle is one of the contenders of a consortium moving to buy TikTok, currently storing American user data under “Project Texas”. But the combination of Fed rate cut expectations, positive earnings momentum, and easing geopolitical tensions between the US and China supported markets, despite September being a historically bad month for equities.

Why Did AI-leader Nvidia Fall?

Nvidia declined as much as 2.4% in pre-market trading on Monday as Chinese regulators accused the company of violating antimonopoly laws. China had also launched an anti-dumping and anti-discrimination probe into US imports of Integrated Circuits (IC) chips before trade talks in Madrid began on Sunday. However, the chipmaker recovered as rumours came out of Madrid of a potential deal on TikTok.

The State Administration for Market Regulation (SAMR), China’s top regulator, announced on Sunday that it has initiated an antimonopoly investigation into Nvidia’s acquisition of Mellanox Technologies, an Israeli company specialising in data centre and server networking solutions, in 2020, citing a violation of the regulator's conditional approval terms. China represents 13% of Nvidia’s revenue, which is equal to around $17 billion, and fines against the chipmaker could lead to anywhere between 1% and 10% of damage in Nvidia’s 2024 sales. 

The announcement coincided with high-stakes talks in Spain but also followed a US expansion of trade restrictions to an additional 23 Chinese companies just last Friday. However, the anti-monopoly investigation started back in December after the US took a harder stance against Chinese chips and chipmaking equipment players. (Source: EconomicTimes)

Which US Stocks Performed Well

Data storage stocks Seagate (STX) and Western Digital (WDC) gained 7.7% and 4.8%, with the former rising to record highs. Oracle also rose 3.4%. Meanwhile, Magnificent Seven (MBAGSI) players Tesla (TSLA) and Alphabet (GOOG) increased by 6% and 4%, respectively, during mid-trading, after CEO Elon Musk announced buying $1 worth of his own company’s stock, with Google entering the $3 trillion market cap mark. Amazon (AMZN) and Meta (META) also rose by 2% and 1% respectively. (Source: Yahoo Finance and Investopedia)

Why is the TikTok Deal Important

The TikTok deal is important for the US economy as it adds $24 billion to US GDP per year and supports over 240k American jobs, according to Oxford Economics 2023 research. A potential “fair” deal might not only support a weakening labour market in the US at a critical time for the Fed,  but also national security and data privacy concerns. BytaDance, TikTok’s owner, has been rumoured to have to share data of 170 million monthly American users with China.

Importantly, the framework deal could pave the way for further trade negotiations between the US and China. This makes TikTok’s ownership structure directly linked to future resolutions, including a potential truce extension, tariff reductions, and whether China caves in to Trump’s push to reduce Russian oil reliance and get a better grip on Ukraine’s war.

Besides these reasons, as Oracle has been at the forefront of the TikTok deal, its involvement will provide assurances that user data will be stored according to US standards. As a result, and since Oracle already supplies cloud infrastructure services for TikTok, it could be in a better position to gain. A de-escalation in tensions could prove beneficial for other US players, too, as it could result in easing of export controls. 

As the 17 September deadline to find a US buyer looms, whether Trump’s previous calls for a 50-50 venture hold true might be more critical to US national security than any corporate interests. (Source: CNN)

*Past performance does not indicate future results. The above are only projections and should not be taken as investment advice.