Nasdaq in Bear Market: Buy the Dip in ETFs?

President Donald Trump introduced and enacted a two-step tariff strategy on April 2, marking the beginning of his 'Liberation Day' plans. A baseline tariff of 10% was imposed on imports from various countries starting April 5 (read: 6 Trade-Resilient ETFs for Investors).

Soon after, the stock market received a thrashing as China retaliated with new tariffs on U.S. goods, sparking fears of a Trump-led global trade war that could result in a recession. Additional duties will be levied on select nations deemed the worst offenders, taking effect on April 9.

While most stocks were hurt,Trump tariffs hit the Nasdaq Composite really hard.

Nasdaq in Bear Market

The Nasdaq Composite, which houses many tech companies that sell to China and manufacture there as well, fell 5.8% on April 4. For the week, the Nasdaq was down 8.6%. The slump took the index down by 22% from its December record, a bear market in the investing concept.

Beyond Tariffs, What Caused Pain in Nasdaq?

Technology stocks led the bloodbath. Apple AAPL plunged 7% on April 4, extending its weekly loss to 13%. ,NVIDIA ,NVDA, a major force in artificial intelligence, fell 7%, while ,Tesla ,TSLA sank 10%. With substantial exposure to China, all three companies were hit hard by Beijing’s retaliatory tariffs. But there’s more to the losing story.

We all know that Big Tech companies have poured billions into data centers and AI chips to support the growth of AI models. However, concerns are mounting that the investment boom is outpacing demand.

The China’s DeepSeek threat made matters worse. Investors should note that DeepSeek, a Chinese startup developing AI models, grabbed headlines with the release of its new R1 model in late January.

According to Yahoo Finance, the company revealed that training the R1 model cost just $5.6 million, significantly less than the $100 million required to train OpenAI's GPT-4 model. This raises important questions about AI investment and the potential rise of more cost-efficient AI agents, which could disrupt the current market dynamics.

Investor jitters intensified lately when Alibaba’s co-founder cautioned that AI infrastructure growth is outstripping actual demand for AI services. This was followed by reports that despite earmarking $80 billion for data center expansion in 2024, Microsoft canceled certain projects in the United States and Europe due to oversupply concerns.

Any Silver Lining?

Despite the uncertainty, Microsoft, Alphabet, Amazon and Meta remain committed to over $300 billion in capital expenditures for their current fiscal years. Despite the recent selloff, some analysts see buying opportunities.

The Nasdaq 100 has seen a decline in its price-to-earnings (P/E) ratio (trailing 12 months) in recent months. It was 41.24X in early September 2024 and fell to 29.27X at the end of March 2025. Melius Research analyst Ben Reitzes argues that a big-time AI beneficiary NVIDIA’s current valuation at 23 times forward earnings appears “defensive,” as quoted on Bloomberg.

Agreed, the Nasdaq 100 has been facing valuation concerns. Even after the recent pullback, the index remains elevated at 24 times estimated profits, above the two-decade average of 20 times, as quoted on Bloomberg. But the AI boom is here to stay. Even Big Techs are likely to adapt themselves to building low-cost AI models sooner or later.

Bottom Line

The industry saw mammoth investments last year that need time to come to fruition. Moreover, tech biggies like Apple, Tesla and NVIDIA have strong ties with China. China's retaliatiry tariffs are likely to weigh on these stocks and the Nasdaq-100. These three stocks take about 20% of the Nasdaq-100.

But then, although sentiments will likely remain bearish, a cheaper valuation is a plus for the space. The Nasdaq-100-based exchange-traded fund (ETF) ,Invesco QQQ Trust, Series 1 ,QQQ has a 200-Day moving average (MA) of 494.03 and a 50-Day moving average of 501.28. ,The 50-day MA (short-term) has risen above the 200-day MA (long-term). This indicates a bullish signal.

Against this backdrop, investors with a strong appetite for risk may play the Nasdaq-100-based ETF ,Invesco QQQ Trust, Series 1 ,QQQ. The ETF has a Zacks Rank #3 (Hold). ,Invesco NASDAQ 100 ETF, QQQM and ,Direxion NASDAQ-100 Equal Weighted Index Shares, QQQE are other ETFs that can be tapped. Each currently carries a Zacks Rank #3.

This article originally published on Zacks Investment Research (zacks.com).

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