In a surprising turn of events, tech companies, spearheaded by Apple, managed to pull the major averages into positive territory on Thursday. The Dow Jones Industrial Average experienced a comeback, adding 201.94 points or 0.54% after initially facing losses of 143.72 points earlier in the trading session. The 30-stock index closed at 37,468.61. The tech-heavy Nasdaq Composite witnessed a notable surge of 1.35%, closing at 15,055.65, while the S&P 500 climbed by 0.88% to end at 4,780.94. Remarkably, both the Nasdaq and the S&P 500 are now positive in 2024, marking an increase of 0.30% and 0.23%, respectively. On the other hand, the Dow remains negative, with a 0.59% decline for the year.
Major tech player, Apple, experienced significant growth, with its shares advancing by approximately 3.3%. This bullish trend followed Bank of America upgrading the stock to a ‘buy’ rating, predicting a potential upside of over 20% within the next 12 months. Thursday marked Apple’s best day in terms of stock performance since May 5, 2023. The positive momentum extended beyond Apple, as the Technology Select Sector SPDR Fund (XLK) also experienced a considerable surge of around 2%, reaching an all-time high.
Another tech leader, Taiwan Semiconductor Manufacturing Co, made waves in the market by posting impressive earnings and revenue results for the fourth quarter, surpassing expectations. As a result, the world’s largest chipmaker witnessed a significant increase of 9.8%. This success reverberated throughout the industry, propelling the VanEck Semiconductor ETF (SMH) up by over 3% to reach an all-time high.
AI Influence on Tech Stocks
The recent positive performance of tech shares can largely be attributed to the positive outlook on artificial intelligence (AI) and semiconductors. Ross Mayfield, investment strategy analyst at Baird, noted that the update from TSMC had generated a wave of optimism regarding forward guidance for semiconductors and AI in the tech industry. Mayfield highlighted that many tech companies are highly influenced by the developments in AI, explaining the correlation between positive price action and AI advancements.
Market Concerns and Speculations
Despite the market’s upward trajectory, concerns remain regarding the labor market and the potential impact on interest rates. The 10-year Treasury yield rose to 4.14% on Thursday, reflecting tighter conditions in the labor market. The Labor Department reported that first-time filings for unemployment insurance stood at 187,000 for the week ending on January 13, marking a decline of 16,000 from the previous period. This figure exceeded economists’ consensus estimate of 208,000, raising concerns that the Federal Reserve might implement fewer rate cuts than initially anticipated.
Rate Cuts and Market Expectations
Market participants are speculating on the Federal Reserve’s future actions based on a buoyant labor market and strong consumer spending, as indicated by the retail sales report for December. Currently, the market is pricing in a 56% probability of a quarter percentage point rate cut in March, according to the CME FedWatch Tool. Jay Hatfield, CEO at Infrastructure Capital Management, emphasized that the market may have misjudged the impact of rate cuts last year, which had caused the 10-year Treasury yield to plummet to around 3.8%. Hatfield highlighted the tech industry’s reputation as a safe haven during times of rising interest rates, suggesting that the current market dynamics align with this pattern.
Conflicting Views on Rate Reduction
Atlanta Fed President Raphael Bostic surprised the market by stating his expectation of rate reductions as early as the third quarter, deviating from his previous outlook. However, Bostic’s revised stance still indicates a slower pace of rate cuts compared to the market’s projections. This conflicting view adds further uncertainty to the market’s rate cut predictions.
Tech companies played a pivotal role in pushing the market into positive territory amidst concerns about the labor market and potential rate cuts. With Apple leading the charge, the tech sector experienced notable growth. The influence of AI and semiconductors in the tech industry continues to drive investor sentiment and stock performance. As the market grapples with conflicting views and uncertainties, it remains to be seen how tech companies will navigate the constantly evolving landscape.