Market Insights

Stocks keep rallying as investors look for the AI boom to drive earnings and the broader economy.

The S&P 500 rose 0.9 percent between Friday, February 23, and Friday, March 1. The index closed above 5,100 for the first time. Technology led the advance.

“We have just started to touch the AI opportunities ahead of us,” said Jeff Clarke, Chief Operating Officer of Dell Technologies (DELL). The computer maker jumped 38 percent to a record high after earnings, revenue and guidance shot past expectation. It also cited accelerating demand for servers specialized in machine learning.

Clarke expects “broader adoption of AI by enterprise customers.” He added that, “PCs will become even more essential as most day-to-day work with AI will be done on the PC” because businesses will prefer keeping their data in house.

DELL isn’t in the S&P 500 because of technicality with its stock structure. But the index’s second-biggest gainer, NetApp (NTAP), beat estimates and raised its outlook after AI investment fueled demand for its data-storage arrays. Axon Enterprise (AXON) and Autodesk (ADSK) also cited AI growth opportunities after announcing strong results.

Barclays raised its target for the S&P 500, in part because AI may boost earnings for big technology stocks. UBS also predicted that machine learning will help the economy by enhancing worker productivity.

Chips Surge Again

Semiconductors remained the go-to industry for AI exposure. Stocks like Advanced Micro Devices (AMD), Broadcom (AVGO) and Applied Materials (AMAT) jumped to new record highs. Biotechnology stocks, homebuilders and retailers also outperformed.

Safe havens like health care, utilities and consumer staples lagged. That’s a potential sign of risk appetite.

Constellation Energy (CEG) had the biggest gain in the S&P 500 last week thanks to clean-energy tax credits. Norwegian Cruise Lines (NCLH) jumped after revenue beat estimates and demand increased. The company also had its first profitable year since the coronavirus pandemic.

Xcel Energy (XEL) was the worst performer in the index after disclosing it may be liable for a wildfire in Texas.

Apple (AAPL) was a notable decliner last week after being removed from the Conviction List at Goldman Sachs. UBS also said AAPL could decline about 28 percent to $130 because it lacks a clear AI strategy and smart-phone demand may weaken.

Treasury Yields

Economic data was moderately weaker. The Commerce Department revised its estimate for fourth-quarter gross domestic product (GDP) slightly lower. Initial jobless claims were higher than expected and the Institute for Supply Management’s manufacturing index was weaker than forecast. Inflation data matched estimates.

Borrowing costs fell in response. Yields on the 10-year Treasury note declined after failing to break above 4.32 percent. That level was the high in June 2008 and October 2022. Has it become a new peak again? That could potentially support market sentiment.

There were also two potential positives in the numbers. First, Personal incomes rose 1 percent in January. It was the highest reading since July 2021 and twice the expected amount. Second, the GDP revision included a slight upward adjustment in consumption.

Charting the Market

The S&P 500 has made new 52-week highs in 12 of the last 13 weeks. (That includes all seven weeks since it broke the previous record from early 2022.)

The index continues to find support at near-term lows instead of having deeper pullbacks. For example, it touched 5057 last Tuesday — some 27 points above a potentially key level from mid-February. Prices made incrementally higher lows on Wednesday and Thursday before jumping on Friday. Such tight price action may suggest that buyers outnumber sellers.

The S&P 500 has also stayed above its 8-day exponential moving average. That could suggest it’s in a short-term uptrend.

Additionally, the Nasdaq Composite closed above its previous high from November 2021.

The Week Ahead

This week brings some important economic events and a few earnings.

Tomorrow features the Institute for Supply Management’s services index. Target (TGT), Nordstrom (JWN) and CrowdStrike (CRWD) announce quarterly results.

Wednesday’s big item is Congressional testimony from Federal Reserve Chairman Jerome Powell. ADP’s private-sector payrolls report and crude-oil inventories are also due.

Thursday brings more Powell testimony, plus initial jobless claims and revised productivity numbers. AVGO, Gap (GPS), Costco (COST) and Marvell Technology report earnings.

Non-farm payrolls are the final major event on Friday morning.