Get Set. A busy week for Wall Street began with gains as artificial intelligence was back on the upswing.
The Dow Jones Industrial Average added 0.3% while the S&P 500 rose 0.7% and the Nasdaq Composite rose 0.8%.
Anthropic's initial public offering filing helped tech take back the reins, shaking off some of the pessimism that weighed on markets last week. However, it will have to share the spotlight soon as Big Tech heavy hitters report over the coming days.
Central banks will be in focus this week as well, including the Federal Reserve, although that might not be too enlightening. "We don't expect clear forward guidance from Fed Chair Kevin Warsh, but we'll be looking for some clues around his inflation views and if he thinks the outlook has improved at all since the last meeting," writes Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. Markets are betting that the Fed holds rates steady, although another interest rate increase in December is likely.
A slew of corporate results are the real stars of the show this week -- roughly a third of the S&P 500 is reporting. That includes companies like Google parent Alphabet, Microsoft, Caterpillar, ExxonMobil, and Mastercard.
"Markets are likely to remain sensitive to questions surrounding the sustainability of AI investment and financing," notes Edward Jones analyst Brock Weimer. "However, a resilient corporate-profit backdrop should remain a pillar of support for equities through the balance of the year."
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The Hot Stock: Lumentum Holdings +8.2% The Biggest Loser: Fair Isaac Corporation -13.2%
Best Sector: Information Technology +1.5% Worst Sector: Communication Services -1.4%
Modern History
Big Tech companies aren't the only ones reporting results this week, but they are taking center stage. That's understandable given that the five largest hyperscalers -- including Amazon.com, Microsoft and Alphabet -- have committed to more than one trillion dollars in AI capex next year.
No matter how revolutionary AI seems, though, its dominance is actually nothing new. It's just another example of how tech has controlled much of the market after World War II.
"It's rather amazing that the leadership or underperformance of a single sector of the stock market -- technology -- has mostly traced out the secular bull and bear markets of the entire U.S. stock market during the last almost 80 years," Paulsen Perspectives Chief Investment Strategist Jim Paulsen notes. "While not a perfect relationship, the relative performance of the technology sector pretty much mirrors the overall success or failure of the S&P 500 Index."
His look back at markets since 1945 showed that tech, even in the 1950s, was already in the driver's seat, and would almost always determine equities' overall direction. In fact, the bull market spanning 1985 to roughly 1992 was the only time the market experienced a secular bull market while technology stocks underperformed.
Technology's ability to make or break the market is also remarkably consistent, he notes: "For all months from 1948 to 2026 (excluding the 8-year period between 1985 to 1992), when technology stocks underperformed, the average annualized total return of the overall S&P 500 Index was -2.3% compared to an average annualized S&P 500 total return of +26.8% during all months when technology stocks outperformed."
AI has been hailed as revolutionary for years, but when it comes to the tech tail wagging the dog, it's nothing new.
The Calendar
American Tower, Baker Hughes, Boeing, BXP, Centene, CenterPoint Energy, CMS Energy, Coca-Cola, Corning, CoStar Group, Ecolab, EQT, Essex Property Trust, Expand Energy, Extra Storage Space, F5, FirstEnergy, Freeport-McMoRan, HCA Healthcare, Hilton Worldwide Holdings, HSBC Holdings, Hubbell, Illinois Tool Works, Invesco, Johnson Controls International, Iqvia, Oneok, Novartis, Paccar, PayPal Holdings, PPG Industries, Robinhood Markets, Royal Caribbean Group, Seagate Technology Holdings, Sherwin-Williams, SoFi Technologies, S&P Global, Teradyne, Universal Health Services, United Parcel Service, Visa, Viatris, Waste Management, and Xylem report quarterly results tomorrow.
The Census Bureau releases the durable goods report for September. Consensus estimate is for a 1.8% month-over-month increase in new orders for manufactured durable goods, after a 0.1% decline in August. Excluding transportation, new orders are seen rising 0.6%.
S&P Cotality releases the Case-Shiller National Home Price Index for August. In July home prices rose 1.9% year over year, with Chicago as the strongest market with a 6.9% jump, while Seattle was the weakest, with home prices falling 1.6%.
The Conference Board releases its Consumer Confidence Index for October. Economists forecast a 80.8 reading, about one point less than in September. The index is currently at its lowest level since early 2014.
The Census Bureau reports new residential sales for September. The consensus call is for a seasonally adjusted annual rate of 650,000 new single-family homes sold, about 5% less than in August.
-- Dan Lam
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