In a surprising turn of events, tech companies, led by Apple, took the reins on Thursday and propelled the major averages into positive territory. The Dow Jones Industrial Average experienced a significant rebound, adding 201.94 points (0.54%) after its earlier 143.72-point loss. The day concluded with the 30-stock index reaching 37,468.61. The tech-heavy Nasdaq Composite witnessed an impressive jump of 1.35%, closing at 15,055.65. The S&P 500 climbed 0.88% to end at 4,780.94, now only 15.62 points (0.33%) away from its all-time high. It is noteworthy that both the Nasdaq and the S&P 500 are now positive year-to-date, with gains of 0.30% and 0.23%, respectively. However, the Dow still remains in negative territory, down 0.59%.
Contributing to the tech surge, Apple shares advanced approximately 3.3% after Bank of America upgraded the stock to a buy rating, predicting a remarkable 20% upside over the next 12 months. This upgrade propelled the tech giant’s stock to its best performance since May 5, 2023. Additionally, the Technology Select Sector SPDR Fund (XLK) recorded a significant increase of about 2%, reaching an all-time high.
TSMC’s Earnings Boost the Semiconductor Sector
The world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co, experienced a remarkable 9.8% increase in share price after posting impressive earnings and revenue for the fourth quarter. This development played a significant role in pushing the VanEck Semiconductor ETF (SMH) up by over 3% to reach its own all-time high. Analyst Ross Mayfield of Baird emphasized the positive impact of the TSMC update on the tech sector, particularly for companies heavily involved in AI and semiconductors. Mayfield stated, “As the macro environment evolves this year, if there’s still tailwind for AI, it’s going to show up in the stocks most leveraged towards AI.”
Shift in the Macro Environment and Market Concerns
As the 10-year Treasury yield rose to 4.14%, fresh jobs data indicated that the labor market remains tight. The Labor Department reported first-time filings for unemployment insurance at 187,000 for the week ended January 13, a decrease of 16,000 from the previous period. This figure surpassed economists’ consensus estimate of 208,000. Consequently, investors now worry that a strong labor market, coupled with robust consumer spending as reflected in the recently published retail sales report for December, may lead to fewer rate cuts by the Federal Reserve than anticipated.
At present, the market is pricing in roughly a 56% chance of a quarter percentage point rate cut in March, according to the CME FedWatch Tool. Jay Hatfield, CEO at Infrastructure Capital Management, highlighted that the market became overly optimistic about rate cuts last year, with the 10-year yield dropping as low as around 3.8%. He explained that tech is often seen as a safe haven in times of rising interest rates, attributing the surge in tech stocks to this prevailing dynamic.
Atlanta Fed President Raphael Bostic made headlines by stating that he expects the central bank to start reducing rates in the third quarter. While this is sooner than his previous projections, it places the Fed on a slower pace of rate cuts compared to what the market currently anticipates. It is worth noting that an earlier version of this information inaccurately identified Bostic’s district.
The surge of tech companies, spearheaded by Apple, contributed to a substantial market rebound. With the Dow recouping its earlier losses, the Nasdaq and S&P 500 now positive for the year, and the impressive performance of Apple and the semiconductor sector, investors remain cautiously optimistic. As the macro environment evolves and the labor market tightens, the market anxiously awaits any potential shifts in the Federal Reserve’s rate-cutting strategy. While the market adjusts its expectations, tech companies and AI-focused enterprises are emerging as potential safe havens for investors.
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