Tech Goes Back to Work as Earnings Approach

Technology stocks could be going back to work as earnings approach.

The S&P 500 rose 1.2 percent between Thursday, July 2, and Friday, July 10. Technology stocks rose the most in four weeks, led by datacenter names like Seagate Technology (STX), Broadcom (AVGO) and Dell Technologies (DELL). Chipmakers bounced after hitting their lowest level in almost a month.

No single piece of good news seemed to lift the market. Instead, there was a lack of new bad news and price action improved technically after a volatility spike in early June. 

Breadth also weakened slightly, with more S&P 500 members falling than rising. That's often consistent with money returning to the key large-cap names that have typically led the market. 

Take Meta Platforms (META), for example. The social-media giant had its biggest weekly gain in more than two years after Bloomberg said it may start a cloud-computing unit to monetize AI capacity. Separate reports from Reuters and Bank of America suggested Mark Zuckerberg's firm is building datacenters at about half the expected cost. ($22 billion per gigawatt versus $45 billion.) The result could be greater profits compared with other big hyperscalers like Amazon.com (AMZN) and Alphabet (GOOGL).

META had at least two other headlines:

• The release of Muse Image for turning photos into videos. Some analysts see the model driving ad monetization, unlike the earlier Llama open-source models.
• Reuters reported META's Iris AI chip will enter production in September. 

META's rally was also noteworthy because leadership moved beyond semiconductors. It follows a similar move by Apple (AAPL) and cybersecurity stocks in recent weeks. 

Are we seeing the next phase of the AI trade, with gains broadening away from the producers of hardware and infrastructure to end users? 

Broadcom Bounces

Even if that's true, chip and equipment stocks like Hewlett Packard Enterprise (HPE), Arista Networks (ANET) and STX climbed. AVGO had its best week since early April amid news it would supply custom chips to AAPL and META.

Other tech stocks like Akamai Technologies (AKAM), NetApp (NTAP), Cisco Systems (CSCO) and Lumentum (LITE) advanced.

Overall, 18 of the 20 biggest gainers in the S&P 500 last week had some connection to technology and AI. Occidental Petroleum (OXY) and Cboe (CBOE) were the exceptions.

SK Hynix also went public in the biggest IPO of a foreign company, closing 13 percent above its $149 offer price. The South Korean memory chip maker listed with the symbol SKHYV, which will become SKHY this week.

Energy stocks rose as limited fighting occurred between the U.S. and Iran. Chinese and Brazilian stocks were also strong last week.

Materials like precious metals led to the downside. Homebuilders and airlines fell. Healthcare and biotechnology pulled back following 2-3 weeks of outperformance.

Inflation Report Tomorrow

Last week brought mixed news on the economy and interest rates. Minutes from the June 16-17 Federal Reserve meeting said policymakers could support rate hikes if inflation doesn't fall toward 2 percent. However, most saw some potential for prices to moderate on their own without tightening.

One potentially encouraging development came from the Institute of Supply Management, whose service-sector price index hit a four-month low. The report emphasized the importance of supply chains returning to normal -- especially for key products like diesel. (ISM's manufacturing index showed similar disinflationary trends on July 1.)

Investors will get more information on inflation tomorrow and Wednesday, when the Bureau of Labor Statistics releases consumer and wholesale price indexes.

Jobless claims fell more than expected last week and crude-oil inventories showed less strain. Those are also potentially positive for employment and price trends.

Charting the Market

The S&P 500 may be showing signs of continuing its uptrend after six weeks of consolidation.

The index ended Friday at its highest closing price since June 4, breaking a potential falling trendline.

That came after the index bounced slightly above its 50-day moving average on Wednesday and held a 50 percent retracement of its bounce from the low of June 26. The result was a higher weekly low, creating a potential basing pattern.

The 20-day MA has also stayed above the 50-day MA. That may suggest the intermediate-term uptrend is still intact.

The moving average convergence/divergence oscillator has additionally started rising again. That could reflect positive short-term momentum.

Cboe's Volatility Index (VIX) ended the week at its lowest level since January 9. 

Surveys from the American Association of Individual Investors (AAII) and the National Association of Active Investment Managers (NAAIM) also show sentiment is still relatively negative. Does cash remain on the sidelines as profits accelerate? 

The Week Ahead

This week is busy with inflation data, Fed news and earnings. The Alzheimer's Association International Conference could also feature pharmaceutical news from Eli Lilly (LLY) and Biogen (BIIB).

Federal Reserve Governors Michelle Bowman and Christopher Waller speak today.

The consumer price index (CPI) inflation report at 8:30 a.m. ET on Tuesday could be the single biggest catalyst this week. Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), Goldman Sachs (GS) and Wells Fargo (WFC) report earnings in the premarket. Fed Chair Warsh testifies before the House of Representatives starting at 10 a.m. ET.

The producer price index (PPI) is on Wednesday morning, along with crude-oil inventories. Warsh's testimony moves to the Senate and Fed Governor Lisa Cook speaks. Earnings are due from Morgan Stanley (MS), Johnson & Johnson (JNJ), ASML (ASML) and United Airlines (UAL).

Thursday features retail sales, initial jobless claims, NAHB's homebuilder sentiment index and pending home sales. Fed Governor Philip Jefferson and Dallas Fed President Lorie Logan speak. Earnings are due from Taiwan Semiconductor (TSM), GE Aerospace (GE), Netflix (NFLX) and Alcoa (AA).

Housing starts and building permits are on Friday morning, along with import/export prices and industrial production.