Market Insights

Technology stocks are rebounding from a weak August as investors target a widening swath of companies like Intel and Western Digital.

The S&P 500 rose 2.5 percent between Friday, August 25, and Friday, September 1. But technology stocks rallied 4.4 percent, their biggest weekly gain in over two months. The surge came at the end of the sector’s worst month of the year (-1.7 percent in August). That may suggest buyers are returning to the group after a brief pause.

While megacaps like Apple (AAPL) and Nvidia (NVDA) rose last week, the big moves were in less-prominent names. Storage makers like Western Digital (WDC) and Seagate Technologies (STX) were the top performers in the S&P 500 on optimism about NAND flash memory prices. Dell Technologies (DELL) jumped to a new record high after Artificial Intelligence (AI) fueled demand for servers.

Intel (INTC) — another 1990s blast from the past — rallied after confirming it was on pace to meet or exceed guidance.

Companies outside major indexes also jumped. Identity-management firm Okta (OKTA) and biotech software maker Veeva Systems (VEEV) reported strong quarterly results. E-commerce player Shopify (SHOP) announced a new sales partnership with Amazon.com (AMZN).

Apple, Alphabet

Despite the shift of interest to smaller companies, at least least two of the “Magnificent 7” had important news.

Alphabet (GOOGL) jumped to a new 52-week high after announcing new AI functionality at its annual Cloud Next event. AAPL bounced after confirming September 12 as its product event. (New iPhones are widely expected.)

Chinese technology stocks also gained after officials in Beijing took steps to support their stock market. Homebuilders climbed as interest rates eased. Materials rebounded from a four-week slide. Energy, the only positive sector in August, advanced as crude oil futures (@CL) hit a nine-month high.

Utilities and consumer staples fell last week. Health care rose by just 0.1 percent. Those safe havens continue to struggle as investors favor riskier assets.

Dollar General (DG) was the worst-performing member of the S&P 500 after missing estimates and cutting guidance. Walgreens Boots Alliance (WBA) hit a 14-year low after CEO Rosalind Brewer resigned.

Economic Data and the Fed

Several data points last week suggested economic growth is easing. The most important was Friday’s non-payrolls report:

• Unemployment rose to 3.8 percent, above the 3.5 percent estimate and the highest level since February 2022.
• Hourly earnings increased 4.3 percent, less than the 4.4 percent expectation.
• Payroll growth from the previous two months was revised down by 110,000 jobs.
• The participation rate increased by 0.2 percentage point to 62.8 percent, the highest since February 2020.

ADP’s private sector payrolls report and consumer confidence were lower than forecast. The growth in second-quarter gross domestic product (GDP) was also revised down 2.1 percent from the preliminary reading of 2.4 percent. Another report from Challenger showed that announced job cuts tripled between July and August.

The data could argue against further interest-rate hikes by the Federal Reserve. (See the screenshot of CME’s Fedwatch tool above.)

Charting the Market

The S&P 500’s bounce in the last two weeks may help confirm the uptrend that began earlier in the year.

First, the index made a higher monthly low versus June. Both of those troughs were also above the peak from August 2022, which suggests new support has developed above old resistance. That’s potentially consistent with an uptrend.

Second, TradeStation data shows that more S&P 500 members are now above their 20-day moving averages than their 50-day moving averages. Similar crossovers in January, March and June preceded upward moves in the index.

Third, Cboe’s volatility index, or VIX, ended last week at its second-lowest closing level since January 2020. That may reflect less fear.

Fourth, sector performance is skewed toward risk appetite. Industries like energy and technology, which benefit from a strong economy and investor confidence, are gaining. Meanwhile, safe havens like utilities and consumer staples are lagging over most time frames.

In the near-term chart watchers may expect resistance around 4528, which was a low on July 20 and July 27.

The Week Ahead

This week is relatively quiet. It’s shortened by Labor Day, which pushes crude-oil inventories from Wednesday to Thursday.

Monthly vehicle sales are due today, which may have some impact on automakers. Zscaler (ZS) reports earnings after the closing bell.

The Institute for Supply Management’s manufacturing index is tomorrow morning. The Fed’s Beige Book report on economic confidence follows in the afternoon. C3.ai (AI) and Gamestop (GME) announce quarterly results.

Thursday brings initial jobless claims and crude-oil inventories. Nothing important is scheduled for Friday.

Next week is more active, with AAPL expected to launch new iPhones and key inflation data due. The following week brings a big Fed meeting.

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