Big Tech stocks drive S&P 500 rebound as AI worries ease

In short: US stocks jumped to a record high, led by a small group of Big Tech companies tied closely to AI.

What's going on

The S&P 500, a major US stock market index, rose about 5 per cent between last Thursday morning and Tuesday afternoon and briefly touched an all time high. It had been mostly flat since mid May.

The move was heavily concentrated in just 13 stocks. According to the Financial Times, those 13 names accounted for more than 90 per cent of the index’s gains, and they were all Big Tech companies. Many of these stocks had fallen earlier in the summer, and last week’s rise looked like a rebound.

The FT notes that these large tech companies have “hitched their wagons” to the AI trade, meaning investors often buy them when they feel positive about artificial intelligence. At the same time, some more defensive stocks, like pharmaceuticals and Walmart, had a weaker week.

There was debate about what caused the jump. Some traders pointed to “technical” factors like short covering, which is when investors who bet a stock would fall rush to buy it back, like someone returning a borrowed item quickly because the price is rising. But the FT reports that people in options markets said the rally looked more driven by business fundamentals, including strong earnings and relief after a heavily leveraged investor called Situational Awareness was taken out of the market.

What to watch

Investors are also watching Friday’s US jobs report. Economists expect payroll growth of about 90,000, after 57,000 in June. The FT says it would likely take a very surprising result to change expectations for interest rates soon, since the Federal Reserve is still focused mainly on inflation.

Source: Financial Times