- Tech stocks recovered at the start of the new week as the AI trade regained momentum.
- The Fed will likely keep interest rates unchanged this week.
- Traders remain cautious ahead of the November midterm elections.
Equities gained on Monday as the AI sector recovered and traders looked forward to major corporate earnings. At the same time, market participants were eagerly awaiting the FOMC policy meeting. Meanwhile, reports of Qatari mediators in Tehran eased concerns about an escalation in the war between the US and Iran.
Tech stocks recovered at the start of the new week as the AI trade regained momentum. Initially, investors were concerned about big borrowing to finance the AI sector that could become unsustainable, especially if interest rates increase. Although these concerns remain, stocks in the sector recovered after reports that Anthropic filed to go public.
Tech Earnings (Source: Bloomberg)
Other stocks that sent equities higher for the day included Nvidia, Microsoft, and Tesla. This week, traders are gearing up for major earnings reports from Coca-Cola, Microsoft, Amazon, and Boeing, among others. Upbeat earnings will support a rally in equities. On the other hand, downbeat earnings would send the stock lower.
Elsewhere, market participants are looking forward to the FOMC policy meeting. Futures show that the central bank will likely keep interest rates unchanged at the meeting. Traders will watch the tone at the meeting for clues on future moves. A hawkish tone would weigh on growth stocks and send equities lower. On the other hand, investors would cheer a cautious tone, as it would mean borrowing costs remain relatively low.
“If, as expected, there is no change in rates, it will still be interesting to see what the vote is after the swings in the last two meetings,” wrote Thomas Block, Washington policy strategist at Fundstrat. “While the Fed views itself above partisan politics, it would be unlikely that the Fed would move rates a week before a national election.”
Meanwhile, traders remain cautious ahead of the November midterm elections. Any political turmoil would dent risk appetite and increase demand for safer assets like bonds.
On the geopolitical front, market participants were worried last week when reports indicated that the US and Israel were planning a heavy attack on Iran after the November elections. However, these worries eased when Qatar sent mediators to Iran on Sunday. If they can resume talks, the hopes for peace would send oil prices lower and ease inflation worries, boosting equities.
