Stock prices have recovered sharply from their recent lows as recent economic data eased recession fears.
Both the S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) are up for the month, even though an employment report released in early August fueled concerns about the health of the U.S. economy and sparked a sell-off.
Since the August 5 sell-off, the S&P 500 has risen nearly 7%, while the Nasdaq Composite has gained more than 8%. A look behind the scenes shows that Big Tech is once again ahead.
The Information Technology (XLK) sector is up nearly 12%. Nvidia (NVDA), the spark plug of the AI-fueled bull market, is also up more than 21%.
The rapid reversal in market movement comes after new economic data was released this week that showed inflation continuing to fall toward the Fed’s 2% target, while consumer spending remains stable and jobless claims do not appear to be rising..
“The economy is slowing, but it is still growing, and that is a very important distinction,” Angelo Kourkafas, chief investment strategist at Edward Jones, told Yahoo Finance. “We are not talking about a contraction, as was feared after the last jobs report.”
After the market crash earlier this month, strategists said they expected a strong comeback in technology stocks.
On August 7, Piper Sandler’s Harsh Kumar noted that Nvidia stock offers a “tremendous opportunity” after a report in the Information that the release of Nvidia’s next-generation AI chips would be delayed by three months sparked a sell-off led primarily by semiconductor stocks. Similarly, on Monday, Bank of America analyst Vivek Arya noted that Nvidia is one of the company’s top rebound picks as he expects the semiconductor industry to make a comeback in late 2024.
The energy to buy on dips hasn’t just extended to Nvidia. Keith Lerner, co-investment manager at Truist, upgraded the technology sector from Equal Weight to Overweight on August 8, noting that the risk-reward ratio has improved.
Lerner’s work showed that during the recent decline, the technology sector posted its worst one-month underperformance relative to the S&P 500 since 2002. Lerner argued that the decline reflected an exit from a crowded trade among investors rather than a change in the fundamental trend of the stocks.
“In a cooling economic environment, we expect investors to return to the technology sector given the long-term tailwinds provided by artificial intelligence (AI) and its excellent growth prospects,” Lerner wrote in a note to clients on August 8. “In addition, we have observed a continued trend in AI capital spending during the current earnings season.”
Josh Schafer is a reporter at Yahoo Finance. Follow him on X @_joshschafer.
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