(Jan 22): US equity futures signalled that the strong Wall Street rally of the past two sessions remains on track, lifted by a slew of robust corporate results and signs that US tariffs on trade partners could be less harsh than feared.

Contracts on the Nasdaq 100 climbed 1%, paced by Netflix Inc’s gain of more than 15% in the premarket and Oracle Corp’s surge of 10% on the US administration’s investment plans for artificial intelligence (AI). A gauge of the dollar fell, signalling relief that President Donald Trump has held back from slapping steep levies on trade partners at the outset of his tenure.  

Fears that the president’s protectionist policies would derail global growth and spark US inflation had pushed the dollar to a 13-month high earlier in the month and driven up bond yields. Instead, Trump’s first two days in office have largely been supportive of sentiment, as investors zero in on his pro-business policies. 

“There was just relief that as of day one, we didn’t get the tariffs that were expected,” said Corinne Lord, a senior investment specialist at St James Place Management. “The question is to what extent we will get them compared to what he’s promised. There is still a lot of nervousness about what might lie ahead.” 

Trump said he was still considering a 10% tariff on all goods from China, following a threat to enact tariffs of as much as 25% on Mexico and Canada by Feb 1. Yet the only actual action he’s taken so far is the call for a review of trade practices that’s due by April 1, potentially giving China and others almost 10 weeks to avert new levies or address his demands.  

A catch-up trade is building for stock market laggards on bets that Trump will take a softer approach on tariffs, according to Bank of America Corp’s monthly survey of fund managers. That’s also reflected in steady Treasury yields.

“The bond market is not buying into inflation angst from tariffs,” said Kenneth Broux, strategist at Societe Generale in London. He described Trump’s threat of a 10% levy on China as “not draconian”.

A recovery in the bond market is also a buy signal for tech stocks, according to Rich Ross, head of technical analysis at Evercore ISI, who sees fresh all-time highs in the first quarter for the Nasdaq 100 and S&P 500 Index. “At the end of the day technology remains in an outstanding position to continue to lead this market higher,” Ross said.

Netflix soared on fourth-quarter results that beat estimates. Oracle shares jumped after it became a partner in a venture with SoftBank Group Corp and OpenAI to fund AI infrastructure, unveiled by the US president. Seagate Technology shares rose more than 6% in the premarket after its earnings beat estimates.

If Netflix’s premarket gains carry through the day, the stock will hit an all-time high and will be poised for its biggest rise since October 2023. 

Bullish bets on Magnificent 7 stocks ranked as the most crowded trade in BofA’s survey, followed by the US dollar and cryptocurrencies.

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