Stock prices have rallied from recent lows as recent economic data has eased recession fears.
The S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) are both trading positive this month, despite an early August jobs report that fueled concerns about the health of the U.S. economy and sparked a sell-off.
Since the shares were sold on Aug. 5, the S&P 500 has risen nearly 7%, while the Nasdaq Composite has gained more than 8%. A look under the hood shows Big Tech is back in charge.
The Information Technology (XLK) sector is up nearly 12%. Nvidia (NVDA), the spark of the AI-fueled bull market, is also up more than 21%.
The rapid reversal in market action comes as new economic data released this week showed inflation continuing to ease toward the Fed's 2% target, while consumer spending held steady and the pace of jobless claims showed no sign of accelerating..
“The economy is slowing, but it's still growing, and that's a very important distinction,” Angelo Kourkafas, senior investment strategist at Edward Jones, told Yahoo Finance. “We're not talking about a contraction, which was the fear after the last jobs report.”
Strategists said after the market drop earlier this month that they expected technology stocks to rebound strongly.
On August 7, Piper Sandler's Harsh Kumar noted that there was a “huge opportunity” in Nvidia stock after a report in Information that Nvidia's upcoming next-generation AI chips would be delayed by three months sparked a sell-off led 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 sector to make a full comeback by the end of 2024.
The “buy the dip” energy has spread beyond Nvidia. Truist co-chief investment officer Keith Lerner upgraded the tech sector to Overweight from Equal-weight on Aug. 8, noting that “risk-reward” has improved.
Lerner's work found that during the recent downturn, the technology sector posted its worst monthly performance relative to the S&P 500 since 2002. According to Lerner, the downturn was more a sign of a slowdown in investor trading than a shift in the fundamental story for the stocks.
“In a cooling economic environment, we expect investors to return to technology given the secular tailwinds generated by artificial intelligence (AI) and the excellent growth prospects it offers,” Lerner wrote in a note to clients on Aug. 8. “Additionally, we have seen capital spending toward AI continue to increase during the current earnings season.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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