Another busy day on the markets — and we’ve summarized the key moves.
A significant shift is underway as hedge funds retreat from tech stocks, even as indices climb, and pivot towards consumer staples. This move comes alongside a new US-EU trade framework that includes 15% tariffs on most goods, aiming to bring transatlantic trade certainty.
This rotation implies investors are prioritizing stability amid elevated valuations and persistent interest rates, prompting a re-evaluation of risk appetite across sectors. The question remains: how long will this defensive positioning last?
In today’s financial recap:
US and EU strike landmark 15% tariff deal
Amazon’s AI-powered ad business hits $56B
Hedge funds exit tec for consumer staples
US and EU Strike Landmark 15% Tariff Deal, Reshaping Global Trade
The TradeWatch:
A significant trade agreement has been reached between the US and EU, averting further tariff escalations with a new framework that includes 15% tariffs on most goods and substantial energy and investment commitments.
Unpacked:
US stock futures edged higher, signaling positive market sentiment following the announcement of the trade deal, which averts a more severe tariff escalation.
The agreement establishes a 15% tariff rate on the majority of EU exports, while also committing the EU to purchase USD 750 billion in US energy and make USD 600 billion in US investments over Trump’s second term.
While notable sectors like automotive and spirits face ongoing tariff negotiations, key industries such as aircraft, chemicals, and certain agricultural products have secured exemptions within the framework.
Bottom line:
This landmark accord brings much-needed certainty to transatlantic trade relations, though the established 15% tariffs represent a compromise that may impact European competitiveness. The deal sets new commercial terms that will influence market dynamics and sector performance across both the US and EU.
Amazon’s Ad Juggernaut: The $56B AI-Powered Revenue Stream
The TradeWatch:
Amazon is rapidly expanding its advertising business, now a $56 billion powerhouse fueled by AI and its unique integration of intent, data, and transactions. This strategic growth positions it as a major player rivaling established tech giants.
Unpacked:
Amazon’s advertising segment generated $56 billion in revenue in 2024, marking an 18% increase from the previous year and cementing its status as the third-largest digital advertising company globally, behind only Alphabet and Meta Platforms. This growth is reflected in the stock’s performance, with AMZN showing movement.
This advertising success stems from Amazon’s core advantage: leveraging vast shopping, search, and behavioral data to monetize consumer intent, a capability enhanced by closed-loop attribution that tracks ad effectiveness from impression to purchase.
Marketing consultancy WARC projects Amazon’s retail media ad revenue could surpass $67 billion this year and reach $79 billion by 2026, indicating significant future expansion potential for this high-margin business.
Bottom line:
Amazon’s advertising business is a formidable and increasingly vital profit engine, merging high-margin, fast-growing attributes with a deeply strategic foundation. Investors should closely monitor this segment as it continues to reshape the company’s long-term financial outlook.
Hedge Funds Exit Tech For Consumer Staples
The TradeWatch: Hedge funds dramatically cut their exposure to technology stocks last week, signaling a significant shift in strategy as major indices hit new highs. This pivot sees capital flowing into the more defensive consumer staples sector.
Unpacked:
Hedge funds exited technology stocks at the fastest pace in a year, even as the S&P 500 reached all-time highs, according to Goldman Sachs.
Simultaneously, significant net buying occurred in consumer staples companies, marking the fourth consecutive week funds have piled into this sector.
This rotation occurs while U.S. equity valuations, like price-to-earnings ratios, are 30% higher than their recent decade average, with the S&P 500’s forward P/E now near five-month highs.
Bottom line: This broad move away from tech and into staples suggests investors are prioritizing stability and defending against potential market pullbacks. It signals a notable shift in risk appetite amid elevated valuations and persistently high interest rates.
The Shortlist
Bavarian Nordic agreed to a $2.99 billion private-equity takeover, offering 233 kroner/share to shareholders in the Danish biotech firm.
LG Energy Solution signed a $2.2B copper foil supply agreement with SK Nexilis to diversify battery material sourcing away from China.
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Cheers,
— Michael & the TradeWatch.io editorial team
