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Markets @ Midday: S&P 500 Climbs Above Key Technical Level Amid Tech-Led Rally

AInvestMonday, Jan 6, 2025 2:29 pm ET
2min read

The stock market is experiencing a robust session, with the S&P 500 trading comfortably above its 50-day moving average and maintaining levels above the critical 6,000 threshold. Gains in technology and semiconductor stocks are driving the broader market higher, reflecting optimism around artificial intelligence and economic resilience.

Semiconductors and AI Propel Index Performance

A standout performer in today’s rally is NVIDIA, up nearly 5% ahead of CEO Jensen Huang’s keynote address at the Consumer Electronics Show. The PHLX Semiconductor Index has surged 3.6%, buoyed by excitement over AI prospects and strong revenue growth reported by Foxconn, which posted a 15% year-over-year increase in fourth-quarter revenue.

This enthusiasm has had a cascading effect across the semiconductor sector and bolstered major indices. The Nasdaq Composite is leading with a 1.5% gain, while the Dow Jones Industrial Average is up 0.4%. The information technology sector is the session's leader, climbing 1.9%, followed closely by communication services, which is up 1.8%.

Broader Market Trends

Beyond technology, the rally is relatively broad-based, with eight of the 11 S&P 500 sectors in positive territory. The equal-weighted S&P 500 has risen 0.5%, signaling participation beyond the largest-cap stocks. However, defensive sectors such as utilities have lagged, declining 0.7%.

Market breadth is favorable, with advancers outpacing decliners by a 3-to-2 margin on the NYSE and nearly 2-to-1 at the Nasdaq. This positive bias is further supported by anticipation around President-elect Trump’s push for a reconciliation bill, which includes extending the 2017 tax cuts.

Economic Data Highlights

Today’s economic data paints a mixed picture, with factory orders and the services PMI offering insights into the underlying economic trends:

Factory Orders: November factory orders fell 0.4% month-over-month, slightly worse than the expected 0.3% decline. However, excluding transportation, orders rose 0.2%, signaling a modest improvement in core manufacturing activity. The weakness was largely concentrated in transportation equipment, a volatile category, while other areas showed resilience.

Services PMI: The December S&P Global US Services PMI was revised down to 56.8 from a preliminary reading of 58.5 but remained above November's final reading of 56.1. This indicates an acceleration in service sector expansion, reinforcing the view that the broader economy continues to show pockets of strength.

Fixed-Income Market and Treasury Yields

The 10-year Treasury yield has edged up three basis points to 4.63%, reflecting steady demand for risk assets and moderate inflation expectations. Rising yields suggest that investors are pricing in continued economic resilience but are mindful of the Federal Reserve's potential policy actions as inflation dynamics evolve.

Strategic Implications for Investors

Technology Leadership: The ongoing strength in technology and semiconductor stocks underscores the sector’s central role in driving market performance. Investors may want to consider increasing exposure to these sectors, particularly companies with strong AI and innovation prospects.

Cyclicals vs. Defensives: The underperformance of utilities highlights the market's preference for growth-oriented sectors over defensives. This trend may continue if economic data supports a soft-landing scenario.

Policy Watch: President-elect Trump’s proposed reconciliation bill, including tax cuts, could provide a tailwind for equity markets, particularly in cyclical sectors like industrials and consumer discretionary.

Economic Resilience: The modest pickup in factory orders (excluding transportation) and the expansion in the services PMI suggest that the economy remains on stable footing. These indicators could alleviate concerns about a potential slowdown and support near-term equity market momentum.

Conclusion

Today’s market rally highlights a convergence of positive factors, including strong performance in the technology sector, improving economic data, and supportive fiscal policy expectations.

While risks remain—particularly around inflation and Federal Reserve actions—the current momentum suggests that equity markets are poised for continued gains, led by innovation-driven sectors and a resilient economic backdrop. Investors should remain vigilant, balancing growth opportunities with a diversified approach to manage potential volatility.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.