The Dow Jones Industrial Average experienced its longest winning streak in six years as investors turned their attention away from the technology sector in anticipation of a wave of earnings reports and the Federal Reserve meeting. Analysts believe that this shift indicates investors diversifying their portfolios and seeking out better bargains in other sectors. With Microsoft, Alphabet (Google’s parent company), and Meta Platforms set to release their earnings reports this week, the market is eagerly awaiting results to determine if these tech giants are maintaining their high valuations.
While the tech-heavy Nasdaq Composite Index has outperformed other indices this year, driven by the rise of mega-cap growth companies and optimism about artificial intelligence, it experienced a loss of momentum during the trading session. Investors, on the lookout for discounted opportunities, shifted their focus to non-tech stocks, resulting in gains in sectors ranging from energy to banks.
According to Venu Krishna, the head of US equity strategy at Barclays, investors are now differentiating between tech companies. While a few Big Tech names continue to drive earnings growth, the outlook for the rest of the tech sector is deteriorating. This demonstrates a growing sentiment among investors that tech stocks may have reached their peak, prompting a shift towards other areas of the market.
Boosting the Dow’s winning streak, Chevron recorded upbeat preliminary quarterly earnings over the weekend, providing a further boost to investor confidence. Despite expectations of a decline in second-quarter earnings, market participants shrugged off a survey indicating a slowdown in US business activity in July. This slowdown, attributed to decelerating service-sector growth, was overshadowed by the increasing belief that the Federal Reserve may adopt a more accommodative stance, potentially leading to a soft landing. As a result, sidelined cash is flowing back into the stock market.
The upcoming Federal Reserve policy meeting is expected to result in a 25 basis points increase in interest rates, signaling what could potentially be the last hike in the current tightening cycle. This shift in monetary policy comes after recent data showing signs of disinflation. Nevertheless, market participants remain optimistic, with the S&P 500 gaining 18.72 points (0.41%) to close at 4,555.06, the Nasdaq Composite rising 26.06 points (0.19%) to reach 14,058.87, and the Dow Jones Industrial Average climbing 187.11 points (0.53%) to reach 35,414.80.
The majority of the 11 major S&P 500 sectors experienced gains, with energy stocks leading the way. Notable stock movements included toymaker Mattel’s rise following the successful debut of the Barbie movie, which set a record as the biggest domestic opening in 2023. Additionally, AMC Entertainment witnessed a jump after a judge blocked the theater chain’s stock conversion plan, preventing potential dilution of investors’ holdings. However, the preferred shares of AMC declined.
Furthermore, shares of US-listed Chinese companies such as Alibaba and JD.com increased as their top leaders announced economic policy adjustments aimed at expanding domestic demand. In an effort to address over-concentration within the Nasdaq 100, the exchange operator Nasdaq reduced the weightage of a select few companies that currently constitute nearly half of the index.
In conclusion, the Dow Jones Industrial Average’s longest winning streak in six years indicates a market shift away from the technology sector in favor of other sectors. Investors are eagerly awaiting earnings results from major tech companies this week to determine if their valuations are justified. The Federal Reserve’s upcoming meeting and expected interest rate hike are also influencing market sentiment. Despite a slowdown in US business activity, investor confidence remains high, leading to gains in multiple sectors.
