April 24, 2025
US equities have had a good week on optimism around trade war reconciliation. Positive catalysts included acknowledgement that escalating tariffs on China would be “unsustainable” by Treasury Secretary Bessent. News that US/Japan talks shows progress and reports that lowering tariffs on China were in consideration. These developments surfaced as earnings season struck a less ominous tone that expected with several big industrials like GE and 3M highlighting cost mitigation strategies.
With a more positive tilt to the news flow, we are seeing previously discounted themes within the US equity market starting to show signs of positive turnaround. This week, we’re highlighting the nascent recovery in Internet stocks.
The chart below shows 5 of the largest internet themed ETFs: IBUY, FDN, KWEB, ARKW, PNQI. Rotation out of the US peaked in early March and we can see an inflection in relative performance from KWEB (negative) and the domestic focused internet funds (positive) on March 10-13. We would also note in the very near-term that KWEB has improved and that there is potential for Chinese internet shares to outperform even if investors are broadly rotating back into US Growth exposures.
A look at the price action of FDN (chart below) shows clear YTD retracement into a long-term support zone that contained most of the price action for the first 3 quarters of 2024. Oscillator studies are moving higher from deeply oversold conditions with price firming. We’d like to see prices (currently at the $218 level) follow-through above $230 to confirm bullish reversal by moving above the major moving averages.
When we look through a sampling of the Internet ETF holdings, we are seeing evidence of early-stage turnarounds in stocks Large and Small. With the caveat that these are early days for a potential recovery, the price action and breadth are constructive in the near-term. Our market internals chart shows back-to-back days were >90% of the ETF constituents gained and we’re seeing higher highs on the % of stocks above their 50-day moving averages (chart below, panels 2 & 3).
On a stock-by-stock basis, many charts regardless of size have seen price retrace to longer-term support levels with signs of near-term improvements in performance. We highlight MSFT, DOCU and RDDT as three examples.
Conclusion
Any continued positive momentum on global trade reconciliation is likely to come with reflation in US Growth shares. The Internet theme is likely to benefit if these circumstances prevail and we are seeing early signs of stabilization and potential bullish reversal in a diverse set of internet stock charts.
Data sourced from FactSet Research Systems Inc.
