Tech stocks rebounded Monday after a week of losses, led by artificial intelligence companies and chipmakers. Investors say this week's big tech earnings will decide whether the move lasts.
The S&P 500 and Nasdaq Composite rallied Monday, largely due to a rebound in artificial intelligence companies. The iShares Semiconductor ETF was on pace to snap a nine-day slump, and the Magnificent Seven outperformed.
The bounce follows last week's declines. The S&P 500 fell nearly 2% last week, its worst weekly decline since late June, while the Nasdaq Composite dropped 4.5% over the same five-day span.
Earnings will test the bounce
Monday looked like a bounce from oversold conditions, but a bigger move depends on this week's big tech earnings, including results from Meta Platforms and Tesla. SpaceX reports after the bell Tuesday.
Ajay Rajadhyaksha, global chairman of research at Barclays, wrote: "Tech earnings are key this week." Barclays turned neutral on risk assets and stays neutral on duration.
Katie Stockton, founder of Fairlead Strategies, said in a Monday note that the S&P 500 and Nasdaq need to hold support so as not to confirm a further breakdown. Widespread, short-term oversold conditions suggest support can hold for the time being, she said.
A high bar for AI names
Of the 47 S&P 500 companies that have reported third-quarter results, 85% have beaten expectations, and the index is on track for blended earnings growth of 29%. But the bulk of tech results are still to come, and they face a high bar.
Ron Albahary, chief investment officer at LNW, said investors will need proof from AI-linked companies that they can deliver on the earnings growth expectations built into their pricing. He said this cycle has an earnings-expectation-potential bubble rather than a valuation-potential bubble like the internet bubble. Some AI beneficiaries may keep rising, he said, while others, such as neocloud platforms, may sell off because of the debt they take on to finance the build-out.
Sameer Samana of Wells Fargo Investment Institute said action in the AI trade appears to be more of a reality check than a full-blown unraveling. He still believes there may be more pressure in the days and maybe even weeks ahead.
Source: CNBC
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