(Feb 10) : Another rally in tech companies after an artificial intelligence-driven rout drove stocks higher ahead of economic data that will help shape the Federal Reserve outlook. Gold topped US$5,000. The dollar fell.
Following a surge that added US$1 trillion to the S&P 500’s value at the end of last week, the index kept rising to approach its all-time highs. A gauge of chipmakers climbed 1.4% while an ETF focused on software names extended a back-to-back advance to almost 7%. Oracle Corp. jumped 9.6%. Alphabet Inc. embarked on a global bond spree to fund its AI ambitions.
“When markets sell off like certain areas in tech have, there’s often knee-jerk rallies,” said Sameer Samana at Wells Fargo Investment Institute. “Time will tell if we need a retest or if enough value was created.”
Traders are also gearing up for a busy week of economic readings that include the two most-consequential data snapshots: employment and inflation.
The jobs report - due Wednesday - is expected to show payrolls rose 68,000 in January. The unemployment rate is seen steady at 4.4%. The data will also include historical revisions that are anticipated to show a sizable downward adjustment to payrolls in the year through March 2025.
“A so-so jobs report probably won’t have much of an impact, but traders expecting stocks to bounce on weak numbers have to consider the possibility that a choppy stock market may simply treat good news as good and bad news as bad,” said Chris Larkin at E*Trade from Morgan Stanley.
See also: US stocks gain as big week of economic data gets underway
In Friday’s consumer price index, economists will look for more evidence that inflation is on a downward trend. Before that, figures on Tuesday are projected to show solid retail sales.
Action in the Treasury market was fairly muted following an earlier slide driven by news that Chinese regulators were said to be urging banks to curb US government bond exposure amid market risks.
The S&P 500 added 0.5%. The Dow Jones Industrial Average held above 50,000. The Russell 2000 climbed 0.7%. The yield on 10-year Treasuries was little changed at 4.20%. The dollar fell 0.6%.
See also: US consumer sentiment rises unexpectedly to a six-month high
Bitcoin wavered near US$70,000. Oil rose as the US advised ships to steer clear of Iranian waters when navigating the Strait of Hormuz. UK assets bounced from session lows, with Keir Starmer’s cabinet members voicing support for the prime minister. Japanese equities jumped to a record as Prime Minister Sanae Takaichi secured a historic election triumph.
For months, investors have been growing increasingly anxious about how AI will potentially transform the economy. Last week, those concerns suddenly spilled over into the stock market. The culprit was AI startup Anthropic, which released new tools designed to automate work tasks in various industries, sparking fears that the innovations would doom countless businesses.
The tumult left investors questioning some underlying assumptions. Is the economy really strong enough to support another year of double-digit gains? Will AI’s promise of productivity gains instead wreak havoc on entire industries? Are retail traders distorting markets, turning havens into hazards?
The flip side is that there’s little fundamental evidence of deterioration.
US technology stocks have the scope to rally further as the buzz around AI underpins a robust sales outlook, according to Morgan Stanley strategists.
The team led by Michael Wilson said revenue growth expectations for the biggest tech stocks have reached “multi-decade highs,” while valuations have declined after recent market volatility. At the same time, the rout in software stocks has opened up “attractive entry points” in some names.
The technology sector reset was a necessary digestion of prior gains, with the industry projected to record earnings-per-share growth of 32% in 2026, followed by an additional 20% in 2027, according to Sam Stovall at CFRA. That compares with the S&P 500’s projected gains of 13% and 16%, respectively.
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“Should these EPS growth estimates continue to hold up, investors will be pleased they stayed the course,” he said.
There seems to be faith that mega-tech companies know what they are doing in pouring so much money into building out the massive data centers, according to veteran Wall Street strategist Louis Navellier.
“There remain doubts as to the timing of the return on the huge investment, as well as the apparent restraint on coming up with the needed power supplies, but we’re already seeing significant job reductions due to the efficiencies of early implementation of AI solutions,” he said.
Markets are in a period of healthy rotation, and near-term skepticism about AI isn’t necessarily causing broader market disruptions at the moment, according to Anthony Saglimbene at Ameriprise.
“At present, big tech fundamentals appear sound,” he said. “As long as fundamental conditions hold and tech surprises are kept to a minimum, current market conditions continue to favor a balanced asset allocation approach.”
The S&P 500 is poised for more gains this year as last week’s volatility is likely to remain brief, according to strategists at RBC Capital Markets.
The team led by Lori Calvasina says the five models they track still argue for “solid gains” in stocks, while noting that historical data on recent drawdowns suggest “it’s possible that this latest bout of weakness has played out for now.” The strategists maintain their 12-month price target of 7,750 points for the S&P 500.
“Fourth quarter earnings season continues to be supportive for US equities,” said David Lefkowitz at UBS Global Wealth Management. “Solid growth, supportive central banks, and AI should be the key drivers of further upside for US stocks. We maintain our June 2026 and December 2026 S&P 500 price targets of 7,300 and 7,700.”
The gauge closed at 6,964.82 Monday.
Chris Senyek at Wolfe Research expects continued volatility. He noted that an area like consumer staples that has done so well this year is quite “overbought” while non-software tech stocks remain “very crowded” not only with institutional investors but retail as well.
“Further systematic selling is likely to continue over the near term,” Senyek said.
Hedge funds piled into short positions on US stocks as concerns about disruption to business models from AI reverberated through markets.
Notional short selling across single stocks last week was the biggest on record in Goldman Sachs Group Inc. data going back to 2016, the bank’s prime brokerage team said in a client note. Short sales outpaced long buys by a magnitude of two-to-one, the team including Vincent Lin said, citing flows from the Jan. 30 to Feb. 5 period.
While software and the broader tech trade have seen selling to start the year, the percentage of stocks in the S&P 500 making new 52-week highs has been expanding, according to Bespoke Investment Group strategists.
“One of the reasons overall market breadth has been so strong is that consumer-staples stocks have caught a huge bid,” they said. “While the S&P 500’s net-new highs breakout is a bullish sign, you don’t really want to see defensives leading a rally.”
While staples retreated on Monday, it has surged 13% in 2026 - compared with a gain of less than 2% in the US equity benchmark.
Most sectors within the S&P 500 have remained positive for the year, and that appears to align well with the rebalancing theme in which leadership was expected to rotate more widely after a period dominated by a very narrow set of winners, according to Brian Levitt and Benjamin Jones at Invesco.
“Periods of rotation can feel uncomfortable, especially when they affect assets that had been powerful performance drivers only weeks earlier,” they said. “Yet these phases often help build the foundation for more durable market advances.”
Meantime, this week’s employment data and CPI report may prove pivotal for the Fed as it balances slowing job growth against lingering inflation risks, according to Jason Pride and Michael Reynolds at Glenmede.
“We’re watching whether early-year price pressures will be contained after strong core inflation in January,” said BlackRock Investment Institute strategists. “The jobs report for January will shed light on whether the ‘no hiring, no firing’ stasis in jobs persists. If so, and inflation proves little changed, we see the Fed leaving rates unchanged at its next meeting.”
To Dave Sekera at Morningstar, if CPI were to come out a lot hotter than expected, it could drive some concern and volatility. But as long as it comes in anywhere close to expectations, its should be a “non-event,” he said.
“Economic data has been almost perfectly Goldilocks since the government re-opened in late November and that needs to continue to help stocks weather rising AI skepticism,” according to Tom Essaye at The Sevens Report.
“The stabilizing labor market should help keep the Fed on track to cut rates once or twice this year, assuming price pressures continue to ease,” said Angelo Kourkafas at Edward Jones. “Lower interest rates should reduce borrowing costs for consumers and businesses, helping support the economy and corporate profits.”
To Torsten Slok at Apollo, the bottom line is that it is very difficult to be bearish on the US economic outlook.
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