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Fundamental Analysis

Equities Gain Amid AI Optimism, Led by Tech Heavy Nasdaq

  • Investors were excited about artificial intelligence.
  • Consumer confidence reached a two-year high in July.
  • A survey conducted in July revealed that German business morale declined.

US equities ended Tuesday higher as The Nasdaq, a technology-heavy index, drove gains. Investors were excited about artificial intelligence, anticipating earnings reports from tech giants Alphabet and Microsoft.

Both Alphabet and Microsoft have introduced various AI products since the release of ChatGPT by OpenAI, which is backed by Microsoft. These new products offset the slowdown in their cloud businesses. Consequently, Google’s owner saw a 0.6% increase in shares, and Windows’ maker experienced a 1.7% climb.

Steve Sosnick, the chief strategist at Interactive Brokers, stated that even a minor reason could drive market movements when there is such enthusiasm for a particular investing theme. He referred to it as “inertia.”

As the US central bank prepares for a 25-basis point interest rate hike on Wednesday, policymakers face the decision of how much importance to give recent economic data. 

US consumer confidence: (Source: The Conference Board)

US consumer confidence: (Source: The Conference Board)

A survey indicated that consumer confidence reached a two-year high in July, despite concerns about a potential recession. The tech-heavy Nasdaq Composite index has rallied this year due to significant gains in rate-sensitive mega-cap growth companies. There have also been hopes for the conclusion of the US Federal Reserve’s tightening cycle.

Apart from the tech sector, companies outside the industry are also performing well, attracting investors with lower valuations. 

In Europe, equities saw gains on Tuesday, with miners experiencing their best day in over eight months after China pledged more support for its slowing economy. Unilever also advanced after posting upbeat quarterly sales. Driven by hopes of increased demand, Miners jumped 4.24% in Europe as metal prices rose following China’s pledge.

While there is optimism regarding potential catalysts for global growth, a cautious sentiment prevails in the international markets. Investors await monetary policy decisions from the Federal Reserve and the European Central Bank later this week. 

Following the release of disappointing business activity readings in the Eurozone, worries about a deepening recession in the region intensified. A survey conducted in July revealed that German business morale declined for the third consecutive month. 

Despite these concerns, European equities are currently trading at their highest levels in five weeks. This is due to optimism surrounding the possibility of the Federal Reserve pausing its rate hikes. It helps counterbalance worries about the earnings season and the slowdown in the Eurozone economy.