Last week, we hypothesized that as soon as tech stocks showed support at critical technical levels, the big recent selloff would eventually become a golden buying opportunity.
It appears that is happening right now. And that means it’s time to buy the dip.
Tech stocks were obliterated as overbought technical conditions converged with unforeseen geopolitical risks. In short, tech stocks ran too far, too fast in early July. So, when unforeseen risk emerged last week – namely, tough talk from President Joe Biden on further tech-related trade sanctions between the U.S. and China – investors sold in droves. Makes sense.
However, tech stocks are no longer overbought. And as has been the case, those geopolitical risks are proving to be more “talk” than “walk.” Not to mention, Biden just dropped out of the 2024 U.S. presidential race altogether, so that “tough talk” seems largely irrelevant now.
Meanwhile, the second-quarter earnings season will commence over the next few weeks, which should prove tech stocks’ might.
Strong Earnings Should Boost Tech Stocks
Right now, companies across all industries are spending billions to build and deploy new AI applications. That means that the firms that make the central components for those applications – think AI chipmakers, semiconductor equipment providers, datacenter operators, application developers – are currently benefiting from an enormous AI spending spree.
That will show up in those AI firms’ Q2 earnings reports in the form of supercharged revenue and earnings growth.
Indeed, tech heavyweights like Alphabet (GOOGL), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Meta (META), Texas Instruments (TXN), Qualcomm (QCOM), Advanced Micro Devices (AMD), ServiceNow (NOW) and others will report Q2 earnings over the next two weeks.
And we expect the majority will report stellar earnings on the back of continued strong AI spending trends. Collectively, those strong earnings reports should reaffirm the bull thesis on tech stocks and push them to even higher highs.
At the same time, we will also receive June’s Personal Consumption Expenditures (PCE) report this Friday and July’s jobs data the following week. Both have the potential to meaningfully increase the odds of multiple Fed rate cuts over the next few months.
And we anticipate that they’ll do just that.
The Final Word
Analysts expect June’s PCE report to show that both inflation and core inflation slowed to 2.4% last month. If so, that would mark the lowest inflation rate in this cycle. And it would put inflation just a stone’s throw away from the Fed’s 2% target. In turn, Treasury yields are likely to fall. And as investors price in more rate cuts for the rest of the year, tech stocks will likely rise.
The July jobs report, meanwhile, should be fairly weak. In fact, over the past few weeks, jobless claims have spiked to their highest levels in this cycle.
Moreover, jobless claims tend to lead headline employment numbers. Therefore, given July’s big spike in jobless claims, it’s likely that next Friday’s data will be fairly weak. And that should lead investors to price in even more rate cuts for 2024, which will likely boost tech stocks as well.
So, overall, the outlook for a rally in tech stocks over the next few weeks is quite favorable.
We’re confident that strong earnings, coupled with soft inflation and weak labor market data, will supercharge a tech stock rebound rally to record highs.
That rebound rally likely got started yesterday.
And in our opinion, that means it’s time to buy tech stocks.
Check out the tech stocks we’re recommending right now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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