The tech space took a tumble in the week ended Aug. 2, with the Technology Select Sector SPDR Fund XLK declining more than 5% and underperforming the S&P 500 Index – a measure of broader market performance. Here’s a summary of what dragged the sector this week and a perspective on where these stocks are headed into the near- and medium-term.
Mixed Tech Earnings, Geopolitics Weigh: Tech stocks started the week on a cautious but a winning note as traders awaited earnings reports from a slew of mega-cap tech names. They pulled back notably on Tuesday, dragged by some tech earnings disappointments, and caution ahead of imminent catalysts.
Strong earnings report from Advanced Micro Devices, Inc. AMD fueled a rebound by tech stocks on Wednesday but macro concerns reignited the selling pressure on Thursday. Separate reports on the manufacturing sector and the job market proved to be the undoing of the sector, with traders largely ignoring Meta Platform, Inc.‘s META fairly robust earnings.
The selling pressure extended to Friday’s session as Intel Corp.‘s INTC earnings miss and reports of a potential Federal Trade Commission probe into high-flying Nvidia Corp. NVDA sapped risk appetite of traders toward tech stocks.
Commenting on the week’s tech sell-off, Wedbush analyst Daniel Ives said, “The perfect storm panicked tech sell-off has now gained steam after the weaker jobs report…fueled the R word fears and worries the Fed is now too late in its cutting cycle with tech stocks in the center of this Category 5 storm sell- off.”
Here’s how the major tech stocks and exchange-traded funds fared in the week ended Aug. 2:
- iShares Semiconductor ETF SOXX: -9.84%
- Invesco QQQ Trust QQQ: -3.07%
- Vanguard Information Technology Index Fund ETF Shares VGT: -4.90%
- Direxion Daily Semiconductor Bull 3X Shares SOXL: -30.01%
- T-Rex 2X Long NVIDIA Daily Target ETF NVDX: -12.21%
- Nvidia: -5.12%
- Intel: -31.48%
- AMD: -5.35%
- Arm Holdings plc ARM: -23.86% (the decline in part was due to quarterly earnings)
- Apple, Inc. AAPL: +0.87%
The Nasdaq 100 Index, which tracks the performance of 100 biggest non-financial tech stocks, has entered the correction territory following the week’s sell-off. From a July 11’s intraday high of 18,671.07, the Nasdaq 100 has lost a little over 10%. A pullback of over 10% from a recent high is called a correction in stock market parlance.
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What Lies Ahead? Ives says that this tech bull market and historic run for tech stocks isn’t over. “This is just a white knuckle moment in a multi-year bull run for tech stocks that need hand holding,” he said.
The analyst called for soft-landing and expects the Fed to kickstart a major cutting cycle the next 18 months.
Ives’ optimism on tech stocks is premised mainly on his confidence in the artificial intelligence technology.
“We strongly believe this is still the early innings of a $1 trillion AI Cap Ex cycle that will be a 4th Industrial Revolution fueling the broader tech sector for years to come with accelerated growth rates across the tech ecosystem,” he said.
This June quarter earnings season validated Wedbush’s bull thesis and field checks around the massive cloud buildouts, Ivs said.
“While we clearly get the worries/fears the US consumer is weakening (Amazon consumer softer print), Fed is late to the game, hard landing/hello again bear thesis returning…we focus on tech spending and the winners that will be front and center in this massive AI tech buildout that is still in the 2nd inning of a 9 inning game,” he said.
The prospect of the Fed embarking on rate cuts, though negative for mega-caps, may prove healthy for SMID-cap tech stocks. Also, regulatory overhang is in the spotlight in the wake of the presidential election. A Republicans victory is seen by many as resulting in a far less stringent regulatory environment.
Palantir Technologies, Inc. PLTR , another AI-levered name, is on track to report earnings in the unfolding week, potentially offering insights into the strength of the AI wave. On the economic front, things will likely be a little bit slow, with two service sector activity readings and jobless claims among the notable releases.
The QQQ ended Friday’s session down 2.37% at $448.75, according to Benzinga Pro data.
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