Tech comeback: Battered sector takes charge in latest market upswing

Stocks have surged back from recent lows as fresh economic data eases recession fears.

The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) are both showing positive gains for the month, despite an initial sell-off triggered by a jobs report in early August that raised concerns about the US economy.

Since the market downturn on August 5, the S&P 500 has rebounded nearly 7%, while the Nasdaq Composite has risen over 8%. This rebound is driven largely by the Information Technology (XLK) sector, which is up almost 12%, with Nvidia (NVDA), a key player in the AI-driven bull market, climbing more than 21%.

The turnaround follows new economic data this week indicating that inflation is moving closer to the Federal Reserve’s 2% target, consumer spending remains strong, and jobless claims are not escalating.

Angelo Kourkafas, senior investment strategist at Edward Jones, told Yahoo Finance, “The economy is slowing, but it’s still growing, which is a crucial distinction. We’re not facing the contraction that was feared after the last jobs report.”

Following the market drop earlier this month, strategists had anticipated a tech stock resurgence. Piper Sandler’s Harsh Kumar highlighted Nvidia as a “tremendous opportunity” after a temporary sell-off due to a delay in its next-gen AI chips. Bank of America analyst Vivek Arya also included Nvidia as a top “rebound” pick, predicting a semiconductor recovery by the end of 2024.

The optimism extends beyond Nvidia. Truist co-chief investment officer Keith Lerner upgraded the tech sector to Overweight from Equal Weight, citing improved “risk-reward” dynamics. He noted that the recent pullback represented a shift in investor positioning rather than a fundamental change in the tech sector’s outlook.

“In a cooling economic environment, we expect investors to return to tech, driven by AI’s secular growth prospects,” Lerner wrote in an August 8 note. “During the current earnings season, we’ve observed increased capital spending on AI.”