(Bloomberg) — Big Tech has led the furious rebound in US stocks from the tailspin that followed President Donald Trump’s sweeping April 2 tariff edict. Now options traders are signaling that they see the pricey cohort as especially vulnerable to another round of trade war-driven volatility.
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The cost of protecting against a correction in the Invesco QQQ Trust Series 1 exchange-traded fund, which tracks the tech-heavy Nasdaq 100 Index, is climbing with less than a month to go until Trump’s 90-day pause on reciprocal tariffs potentially ends. On Friday, the relative price of hedging against a 10% decline in the ETF, compared with a similar rally, hit its highest level since early April.
The growing skepticism toward the megacap rally shows investors are well aware of the risks, should trade tensions flare again and reignite worries around the US economic outlook. The tech behemoths fell harder than the broad market during the early April turmoil, and some investors see a threat that it could happen again.
“Right now, high valuations, and to some extent economic impacts of the tariffs, are still worries,” Rocky Fishman, founder of research firm Asym 500, said in an interview.
Helped by a positive earnings season, a Bloomberg gauge of the Magnificent Seven — Nvidia Corp., Microsoft Corp., Tesla Inc., Apple Inc., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc. — has rallied 31% since April 8, the day before Trump paused most of his harshest tariffs. Meanwhile, the S&P 500 Index is up 20%.
Besides trade-war fears, there are other reasons for concern about the group, such as the amount of cash they’re throwing at artificial intelligence. That spending is fueling concerns about profit margins, and investors have high expectations that those expenditures will pay off.
High valuations present another worry. Bloomberg’s Magnificent Seven gauge is trading at 29 times projected profits, above a 10-year average of 28. That compares with the S&P 500’s forward multiple of 22.
Earlier this month, Needham analysts downgraded Apple’s stock to a hold rating, warning that the company’s valuation looks “expensive on several metrics.” They also cited the iPhone maker’s vulnerability to US tariffs.
The uptick in demand for hedges underscores investor doubts about the staying power of the current rally, Fishman said.
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