Can Big Tech Reverse the Stock Market Downtrend?

Big tech stocks have influenced the financial markets over the past week. Nvidia spearheaded this influence with its impressive performance. Despite market challenges, the tech giants showed they can handle difficulties and influence market trends.

Despite prevailing trader uncertainty, the Nasdaq Composite and Nasdaq-100 Index both recorded notable gains, posting increases of 3.1% and 3.2%, respectively.

The Standard & Poor’s 500 Index hit a 52-week high at 4,802.40, eventually settling at 4,783.83, reflecting a 2% weekly increase. Meanwhile, the Dow Jones industrials experienced a modest uptick of 0.34%.

Freepik | starline | Nasdaq Composite and Nasdaq-100 Index both experienced positive gains.

Oil prices saw a slight increase, and gas prices continued to decline. Expectations for a Federal Reserve interest rate cut persisted, but the timing remained unclear.

Is the January Effect Influencing 2024?

Amid concerns of a potential January decline affecting the entire year, recent events have raised questions about the market’s trajectory. However, several impactful developments competed for attention:

• Citigroup’s announcement of a plan to cut 20,000 jobs after reporting its worst quarter in 14 years.

• Due to high maintenance costs, Hertz decided to sell a significant part of its electric-vehicle fleet, including Teslas, Volvos, and Polestars. This led to a 6.8% drop in Hertz shares and a 7.8% decline in Tesla shares.

• The alarming incident of a door plug blowout on an Alaska Airlines plane, resulting in the grounding of all 737 9 Max airliners delivered by Boeing. Boeing shares experienced a 12.6% decline during the week.

• Military actions in Yemen, where British and U.S. navies fired on Houthi rebels, signaling an expansion of conflicts related to the Hamas-Israel situation.

In the face of these challenges, a sense of urgency arises: What could rescue the market?

The Power of Patience

Exercise patience. The fourth-quarter earnings season has commenced. Reports from banks and brokerages dominate it. Analysts expect the intensity of earnings reports to peak in the coming weeks. Microsoft and Apple are scheduled to announce their results in late January and early February.

Instagram | Quotes | Microsoft and Apple are scheduled to announce their results in late January and early February.

Additionally, the Federal Reserve is set to conduct its first two-day meeting on January 30-31. This may give clearer signals about expected interest rate cuts. Wall Street projects six rate cuts in 2024, starting in March, despite some skepticism about the timing and number of cuts.

The current federal funds rate stands at 5.25% to 5.5%, influencing most U.S. interest rates. interest rates have decreased since October, with the 10-year Treasury yield at 3.944%, down from exceeding 5% on October 19.

The Tech Surge: Nvidia Takes the Lead

The standout performance of tech, particularly Big Tech (excluding Tesla), appears to be a pivotal factor. Nvidia experienced a remarkable week, with shares surging by 11.4%. The catalyst for this surge was the announcement of new chips.

They are designed for artificial intelligence, personal computers, and gaming. The announcement also included partnerships with Amgen and other companies. Amgen aims to leverage Nvidia-powered machines for drug discovery and data insights.

Instagram | techinasia | The standout performance of tech, particularly Big Tech.

This tech-driven momentum extended to other major players, with Salesforce.com rising by 8.3%, Microsoft by 5.6%, and Amazon.com by 6.5%. However, midcap and smallcap stocks did not enjoy a similar boost, raising questions about the broader market’s health.

As technology continues to attract substantial investment, the risk of overbuying in U.S. markets looms. If tech stocks drive another significant market surge, the potential for overbought conditions, reminiscent of December, raises concerns about a more pronounced pullback.

Key Risks on the Horizon

Amidst the market dynamics, two critical risks demand attention:

• The politically charged environment increases the likelihood of a partial government shutdown. This is true despite reports of a potential spending deal.
• Geopolitical tensions in the Middle East, Ukraine, and Taiwan pose a threefold risk. They could lead to a surge in oil prices and reignite inflation.
  

Navigating the Risks and Rewards in Big Tech’s Market Influence

Big Tech has demonstrated a formidable capacity to propel stock markets upwards, often becoming the linchpin of market resilience. Yet, this extended dominance of technology companies is not without its pitfalls, such as the risks of overbought conditions and the susceptibility of markets to narrow rallies. Beyond the tech sphere, other macroeconomic risks are also lurking, poised to impact the broader market dynamics.

In this landscape, it becomes crucial for investors to maintain agility in their strategies. By staying informed and adaptable, investors can navigate these complex market conditions, leveraging opportunities while cushioning against potential downturns. In essence, a blend of vigilance and versatility will be key in steering through the evolving market challenges.