The world’s largest technology companies climbed after a selloff that shook markets around the globe, with traders gearing up for the start of the megacap earnings season and the Federal Reserve rate decision.
Equities rebounded, with the S&P 500 up 1 per cent and the Nasdaq 100 rising 1.8 per cent. Nvidia Corp. rallied 7.8 per cent, following its largest value loss in history. Microsoft is in talks to acquire the US arm of ByteDance’s TikTok, President Donald Trump said Monday night. The shares were up 2 per cent Tuesday. The bounce in the tech space also reduced the search for haven assets, with bonds seeing small losses.
The relative sense of calm on Wall Street comes after a rough start to the week on concern that a cheap artificial intelligence-model from Chinese startup DeepSeek could make valuations of the technology that has powered the bull market tough to justify.
“Was it a bit unnerving? Yes, for some. Should you panic? Not at all,” said Kenny Polcari or SlateStone Wealth. “If you talk to anyone that bought stock yesterday, they loved the opportunity to buy some of these names at a deep discount. In the end, no matter how this plays out, competition is good. And remember, you get what you pay for.”
Now the big-tech reporting period that kicks off Wednesday will be a key test for bulls. While earnings from the so-called Magnificent Seven behemoths are still rising – and far outpacing the rest of the market – the group’s profit growth is projected to come in at the slowest pace in almost two years.
“The dust is now settling after Monday’s long overdue AI reckoning, and while we still believe in the AI-driven productivity story, investing in this sector going forward may not be as easy as it was over the past two years,” said Emily Bowersock Hill at Bowersock Capital Partners. “We expect investors to be more discerning and selective when it comes to AI investing.”
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As the Fed’s two-day meeting began, investors have accepted that officials probably won’t be cutting rates this time. But they’re looking for any signal from Chair Jerome Powell on which way inflation is going. A survey conducted by 22V Research shows 67 per cent of respondents expect the reaction to the Fed Wednesday to be “mixed/negligible,” 21 per cent said “risk-off” and 12 per cent “risk-on.”
A gauge of the Magnificent Seven megacaps climbed 2.9 per cent. The Dow Jones Industrial Average gained 0.3 per cent. Boeing rose 1.1 per cent as its chief is optimistic the company can return to a key production target for its 737 airliner this year.
The yield on 10-year Treasuries advanced one basis point to 4.55 per cent.
A punishing selloff in technology stocks on Monday spelled opportunity for dip-buyers prowling in the US$11 trillion ETF arena.
Craig Johnson at Piper Sandler noted that the fact that more stocks rose than fell during Monday’s selloff was a “a clear sign of strength beyond the AI sector as this market rally broadens out.”
At Wolfe Research, Chris Senyek said while the focus on DeepSeek rattled markets to start the week, the reaction was overblown in the short term.
“With that said, this news flow probably caps P/E multiples for data centre driven industrials and power names to which AI enthusiasm had spread,” he said. “This makes upcoming earnings season all that more important.”
Against a backdrop of healthy demand and stubborn inflation, officials are widely expected to hold borrowing costs steady. At their December confab, policymakers signaled just two interest-rate cuts this year.
“Simply put, the strong US fundamental story of strong growth, elevated inflation, and a more hawkish Fed continues to favor higher US yields and a stronger dollar,” Win Thin at Brown Brothers Harriman, wrote in a note.
By some measures, this Fed meeting is expected to be relatively uneventful for the stock market.
“Markets are not expecting a cut and will focus on what the Fed projects for the rest of 2025,” said Bowersock Hill. “Both inflation and interest rates are going to remain higher for longer – we would not be surprised to see one rate cut in 2025, or even none.” BLOOMBERG
