The main catalysts for the stock market rally of late 2023 have diminished.
As investors become more uncertain about the timing of interest rate cuts by the Federal Reserve, the soft landing trade, which involved an influx of investors into sectors sensitive to interest rates, has encountered setbacks at the start of 2024.
This inquiry prompts the consideration of the subsequent catalyst, and investors might not have to look beyond the technology sector (XLK). In light of the Federal Reserve’s interest rate cuts potentially benefiting speculative trades such as small caps, technology earnings in the coming weeks will continue to be crucial in reviving the market from its January downturn.
As stated by Keith Lerner, the co-chief investment officer at Truist, the calculation is straightforward. Given that the technology sector comprises almost 30% of the S&P 500, which is the largest proportion of any of the eleven sectors, and that the market capitalization of the Magnificent Seven technology stocks alone approaches 30% of the index’s total, fluctuations in those domains continue to be critical for investors in the broader indexes.
“Given the remaining focus, I believe it is crucial for this market to continue to advance that technology continues to generate profits and maintain a healthy rate of earnings growth, even if there is a deceleration in growth,” Lerner told Yahoo Finance on Wednesday in advance of tech earnings.
Thursday began with Taiwan Semiconductor (TSM), a chipmaker that supplies to Apple (APPL) and Nvidia (NVDA), announcing quarterly results prior to the opening bell. The results surpassed initial projections and propelled TSM’s stock nearly 10% higher.
Achieving $1.48 in adjusted earnings per share, the company surpassed the $1.38 forecast of Wall Street. Beyond all, the chipmaker asserted that artificial intelligence is the driving force behind its achievements. Taiwan Semiconductor projects a 20% increase in revenue by 2024, attributable in part to demand for AI products.
The semiconductor index (<SOX) increased by over 3% in response to the news. Nvidia (NVDA), which is nearly equivalent in weighting to the entire Energy sector on the S&P 500, surged by over 2% prior to retracing gains.
