US stock markets showed resilience, with the S&P 500 and Dow Jones Industrial Average posting gains, despite a significant sell-off in semiconductor and AI-related stocks. The S&P 500 rose 0.2%, or 15.60 points, to 7,428.78, while its equal-weighted version hit record highs. The Dow Jones Industrial Average jumped 1%, or 537.24 points, to 52,747.32. These gains outweighed the Nasdaq composite's 0.2% decline, as a rout in semiconductor giants pushed the Nasdaq 100 near a technical correction.
The market's strength was attributed to several factors supporting riskier assets. Analysts like Max Kettner at HSBC Holdings Plc cited strong profit growth, undemanding valuations, a solid start to the earnings season, and rebounding US economic forecasts. Concrete examples include Coca-Cola Co. which rallied 5% after raising its full-year outlook, and Boeing Co. which jumped 4.8% on better-than-expected free cash flow. This broader market resilience came even as Brent crude fell below $85, marking its worst three-day stretch since 2020, which eased inflation worries and sent bond yields lower.
The decline in oil prices and strong performance from more economically sensitive industries helped offset concerns about the sustainability of the AI rally. This rotation in the market is happening as investors await crucial earnings reports from megacap tech companies, including Microsoft Corp. and Meta Platforms Inc. on Wednesday, followed by Apple Inc. and Amazon.com Inc. on Thursday. The Federal Reserve's interest-rate decision is also highly anticipated, with traders seeing a 71% probability of rates remaining unchanged and a 29% chance of a 25-basis-point hike, according to CME's FedWatch tool.
Despite the positive broader market, some companies faced headwinds. Corning tumbled 12% after its third-quarter forecasts missed estimates, and analysts noted that higher rates could pressure AI companies increasingly dependent on debt financing. The consensus among analysts (LSEG I/B/E/S) is an expected 39% jump in S&P 500 aggregate second-quarter earnings year-over-year, with AI-related stocks being a significant contributor, highlighting the continued importance of the sector despite recent volatility.
In summary, the market displayed a rotation from high-flying AI stocks to broader, more value-oriented parts of the economy, supported by robust earnings and declining commodity prices. This shift demonstrates a resilience tempered by concerns about the AI sector's sustainability heading into a crucial week of tech earnings and a Federal Reserve announcement.
