As industries grapple with global uncertainties and shifting paradigms, tech shows emerge as pivotal catalysts in steering the market out of a tough start. A surge in some of the world’s greatest tech companies fuelled a stock rebound, with traders also looking to the latest economic data and Fedspeak for hints on the US central bank’s next move.
Tech future sneak peak
Following a two-day drop, the S&P 500 recovered as bond-market volatility subsided. Megacaps outperformed as Apple Inc. rallied following an analyst upgrade. Chipmakers benefited as Taiwan Semiconductor Manufacturing Co.’s outlook raised optimism for a global tech rebound.
Equities briefly dipped as Tesla Inc. dropped and Humana Inc.’s dismal estimate weighed on health insurers. Equity traders were largely unconcerned by unemployment claims data, which highlighted labor market strength.
Among notable speakers, Fed Bank of Atlanta President Raphael Bostic advised policymakers to move cautiously with rate decreases, citing the potential economic impact of unanticipated events ranging from domestic elections to global conflicts. His Philadelphia counterpart, Patrick Harker, said he expects inflation to continue to fall towards the 2% objective.
The S&P 500 remained near 4,770, while the Nasdaq 100 gained more than 1%. An index of chipmakers rose 3%. Treasury two-year yields maintained at about 4.35%. Oil prices increased to $74. Bitcoin plummeted to its lowest level since the US approved almost a dozen exchange-traded funds that contain cryptocurrencies last week.
According to Fawad Razaqzada of City Index and Forex.com, the rise in stocks implies that things are more calmer, but this does not guarantee that conditions will remain such. He cited a growing notion that global central banks may not cut interest rates as much or as quickly as the market expected.
Coming off its best winning streak in two decades, the S&P 500 has encountered a stumbling hurdle in 2024, with its all-time closing record set two years ago still distant. However, a technical gauge that monitors the momentum to buy or sell equities indicates that bulls are still buying up shares.
The index’s DVAN trend line โ a unique divergence analysis that assesses buying or selling pressure โ has been on a buying spree since the S&P 500 bottomed in late October, with buyers continuing to grab up shares across multiple trading sessions leading up to the closing bell in the last week.
Tech companies performance
The primary drivers of the late-2023 stock market surge have dissipated. With investors increasingly wondering whether the Federal Reserve will decrease interest rates, the so-called “soft landing” strategy, which saw investors flow into interest-rate sensitive industries, has failed as 2024 begins.
This raises the question of the next catalyst, and investors may not need to look any further than the tech sector (XLK). Despite the recent mania for small-cap stocks and other hot trades that could gain from the Fed’s interest rate cuts, technology earnings over the next several weeks will remain critical to lifting the market out of its January downturn.
With the tech sector accounting for about 30% of the S&P 500, by far the greatest percentage of any of the eleven sectors, and the Magnificent Seven tech stocks accounting for nearly 30% of the index’s market capitalization, moves in those areas remain critical for investors in the broader indices.
Taiwan Semiconductor (TSM) took the lead on Thursday, as the chipmaker, which supplies Apple (APPL) and Nvidia (NVDA), released quarterly results that exceeded expectations ahead of the opening bell.
The company’s adjusted earnings per share of $1.48 exceeded Wall Street’s projections of $1.38. Perhaps more importantly, the chipmaker claimed that artificial intelligence is driving its success. Taiwan Semiconductor forecasts revenue to climb by 20% in 2024, thanks in part to AI demand.
The news pushed the semiconductor index (^SOX) about 3% higher, while Nvidia (NVDA), whose weighting in the S&P 500 is nearly as big as the whole energy sector, soared up over 2% before trimming gains.
Other tech behemoths are also expected to report in the next two weeks, beginning with Netflix on January 23. Wall Street analysts expect those reports to come at a pivotal juncture for the market.
