As my hero Winston Churchill once said: “To jaw-jaw is always better than to war-war.” Reports surfaced Monday that the U.S. and China are doing exactly that: jawing instead of warring. Back-channel negotiations between the two nations appear to be moving toward compromise on trade.

Signs that a full-blown trade war might be averted powered the main stock indices higher today. The Dow Jones Industrial Average and S&P 500 racked up their biggest one-day surge in 18 months, a welcome rally in the wake of last week’s rout.

One of my favorite tools for information gathering is to call up my sources on the telephone — old fashioned, but effective. Habits from my days as a newspaperman die hard.

Today I was chatting on the phone with Richard Aboulafia, vice president of analysis at the Teal Group, an aerospace/defense consultancy based in Fairfax, Virginia. Richard is an old friend and colleague. He offered the following analysis of today’s market jump:

“The market has clobbered export-driven manufacturing companies like Boeing over fears of a worst-case trade war. This worst-case was highly unrealistic, especially since there’s a history of Trump making trade threats that are quickly dialed back. There’s a clear pattern of Trump solving problems he created. That’s the dynamic we saw today: markets climbed a wall of worry.”

But that worry won’t go away. News-induced volatility is here to stay, especially in the technology sector. Tech stocks remain overpriced and vulnerable to headline risk.

The U.S. Federal Trade Commission today announced that it had started an investigation of Facebook’s (NSDQ: FB) privacy policies. FB shares ended the day up a mere 0.42%, after several days of crushing declines.

The tech-heavy Nasdaq sharply rose Monday, but tech stocks have taken a beating in recent days. The main culprit is the revelation that Cambridge Analytica, a London-based voter profiling company, covertly harvested data from 50 million Facebook users at the behest of Donald Trump’s presidential campaign.

The Internet was created under a tacit agreement: Willingly post your personal data and the digital realm will be free to share that data. The global love affair with social media has spawned a river of detailed consumer data that can be used for marketing and advertising purposes. Advertisers pay handsomely for access to those metrics.

This business model worked. It spawned billionaires. But now it’s under attack from users, regulators and lawmakers. Silicon Valley faces a crisis of consumer confidence.

On Monday, Senator Charles Grassley (R-IA), chairman of the Senate Judiciary Committee, called on Facebook CEO Mark Zuckerberg to appear at an April 10 hearing about data privacy.

Investors are worried that tech companies, historically given free rein in the name of fostering innovation, face tighter regulation. Greater restrictions would impinge on profits, at a time when tech stock valuations are excessive and based on sky-high expectations about future earnings growth.

Last week, the poplar browser Mozilla ceased advertising on Facebook, asserting that the social network’s default privacy settings allowed access to too much personal data. More defections will surely come. When hearings start on Capitol Hill, expect social media stocks to take a further pounding.

Orwellian overreach…

The Cambridge Analytica case has exposed the dark side of the Internet.

European Union regulators already are preparing to place restrictions on Internet advertising.

The EU in May will implement a new privacy law. Dubbed the General Data Protection Regulation, the sweeping law treats personal data as owned by an individual. Any use of that data must be accompanied by permission after receiving a written request. “Opt out” will be replaced with “opt in.”

The European Commission also has proposed levying a 3% tax on tech firms such as Facebook and Alphabet’s (NSDQ: GOOGL) Google that operate in Europe but have little physical presence there.

The U.S. has no counterpart to the General Data Protection Regulation, but several lawmakers in Congress have pushed for similar legislation. A bill was recently introduced in the Senate to mandate greater transparency in digital political advertising.

Companies like Facebook really don’t make anything. Their services are an ephemeral combination of 1s and 0s. If they end up as, say, regulated utilities, their earnings would plunge. The technology sector — after riding high for so many months — faces an inflection point.

Stocks embarked on a significant upward trajectory today. But the roller-coaster ride isn’t over.

Monday Market Wrap

• DJIA: +2.84% or +669.40 points to close at 24,202.60
  
• S&P 500: +2.72% or +70.29 points to close at 2,658.55
  
• Nasdaq: +3.26% or +227.88 points to close at 7,220.54
  

Monday’s Big Gainers

• USG (NYSE: USG) +19.46%

Building materials maker target of buyout talks.

• Lowe’s (NYSE: LOW) +6.60%

CEO announces succession plan.

• Versum Materials (NYSE: VSM) +6.04%

Major analysts upgrade specialty chipmaker.

Monday’s Big Decliners

• Link Motion (NYSE: LKM) -10.00%

Smart ride service’s rebranding gets mixed reviews.

• Biohaven Pharmaceutical Holding (NYSE: BHVN) -7.27%

Clinical trials for new migraine drug disappoint.

• New York & Company (NYSE: NWY) -4.57%

Apparel retailer’s sales slump.

Letters to the Editor

“Why will the federal deficit boost bond yields? And why is that a danger to stocks?”— Leonard M.

According to the bipartisan Committee for a Responsible Federal Budget, the new tax overhaul package will push the federal deficit to over $1 trillion in 2019.

The federal government must issue bonds to finance that deficit. Making such a large amount of bonds attractive to buyers will require higher yields.

Higher bond yields hike borrowing costs; economic growth and corporate profitability suffer. Higher yields also make bonds a more attractive alternative to riskier stocks — and they make excessive equity valuations harder to justify.

Questions about bond yields? Shoot me an email: mailbag@investingdaily.com

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits. Persinos also serves as an aerospace/defense analyst at the Teal Group.