Tech Sector Earnings Hold Key to Market Recovery as Late 2023 Stock Market Rally Fades
The late 2023 stock market rally that saw investors pouring into interest rate sensitive sectors has started to fade, leaving investors questioning the next catalyst for market growth. However, according to experts, the answer may lie in the technology sector.
Keith Lerner, the co-chief investment officer at Truist, believes that the tech sector will play a crucial role in bringing the market out of its January slump. With the tech sector representing nearly 30% of the S&P 500 and the Magnificent Seven tech stocks alone comprising nearly 30% of the index’s market cap, movements in these areas remain crucial for investors in the broader indexes.
Lerner explains, “With the concentration that you still have, I think, tech showing the earnings and the ability to grow earnings at a good pace, even if we have a step down in growth, is very important to keep this market moving forward.”
One company that has already shown promising results is Taiwan Semiconductor (TSM). The chipmaker, which supplies to Apple and Nvidia, reported quarterly results that beat estimates and propelled the stock nearly 10% higher. Taiwan Semiconductor’s adjusted earnings per share of $1.48 exceeded Wall Street’s expectations for $1.38. Moreover, the company expects revenue to grow 20% in 2024 due in part to AI demand.
The news of Taiwan Semiconductor’s success sent the semiconductor index soaring over 3%, while Nvidia, whose weighting in the S&P 500 is nearly as big as the entire Energy sector, experienced a 2% increase before paring gains.
The positive momentum continued with an upgrade on Apple stock from Bank of America. Analyst Wamsi Mohan moved his rating to Buy from Neutral and increased his price target to $225 from $208, citing artificial intelligence and the new Vision Pro headset as key drivers. As a result, shares of Apple surged more than 3%, marking its best day since May.
These developments in the tech sector had a significant impact on the overall market. The tech-heavy Nasdaq rose more than 1.3%, while the S&P 500 added nearly 1%.
Looking ahead, other tech giants are expected to report their earnings in the next two weeks, starting with Netflix on January 23. Wall Street strategists believe that these reports will serve as a critical juncture for the market.
BofA equity strategist Ohsung Kwon explains, “Companies have cut costs throughout the earnings recession. They have managed margins. Margins went up for the second straight quarter. So I think the momentum is to the upside, and if companies talk more positively this earning season, given that the rate pressure and the macro uncertainty has eased somewhat, now, that’s going to be bullish for equities.”
For now, technology is the sector leading the market higher. As investors eagerly await the upcoming earnings reports from tech giants, the performance of the tech sector will continue to be a key factor in determining the market’s recovery.
In conclusion, while the late 2023 stock market rally may have faded, the tech sector holds the key to market recovery. With its significant representation in the S&P 500 and its ability to generate strong earnings, the performance of tech stocks will play a crucial role in driving the broader indexes forward. The recent success of Taiwan Semiconductor and Apple’s positive outlook have already had a positive impact on the market, with the tech-heavy Nasdaq and S&P 500 experiencing notable gains. As other tech giants prepare to report their earnings, investors are hopeful that these reports will further fuel market growth.
