S&P 500 Rebounds Amid Volatility as Enthusiasm for AI Wanes
S&P 500 Rebounds Amid Volatility as Enthusiasm for AI Wanes
By:JJ Kinahan
Meanwhile the market is eying key upcoming earnings reports
More than half of S&P 500 stocks are now trading above their 50-day moving average, indicating positive short-term momentum.
Investor excitement over AI-driven stock gains has tempered with concerns about monetization impacting market sentiment.
Major earnings reports and key economic indicators are due next week and could influence market volatility and investor outlook.
Stocks rallied across all sectors yesterday, with the Nasdaq Composite gaining 2.9%, the Russell 2000 up 2.4% and the Dow Jones Industrial Average adding 1.76%. The S&P 500 also rose 2.3%, narrowing its weekly loss to just 0.5%. Volatility eased significantly as the VIX dropped nearly 15%, closing just below 24.
A positive shift occurred with 54% of stocks in the S&P 500 now trading above their 50-day moving average, up from 42% on Monday. This indicates a recovery in short-term momentum for most stocks, though there's room for improvement.
Coming to terms with the yen
Earlier selling pressure was due partly to the unwinding of the yen carry trade, where traders borrow in low-interest currencies like the yen to buy higher-yielding assets. As Japan raised interest rates, the carry trade became less profitable, leading traders to sell off assets to repay borrowed yen.
However, that wasn't the sole reason for the market downturn. The enthusiasm over artificial intelligence also played a role. Stocks like Nvidia ( NVDA), Microsoft (MSFT) and others surged on the potential of AI, but concerns about how these companies will monetize AI led to some cooling of that excitement.
What lies ahead for the markets
The upcoming weeks will be crucial as major companies report earnings and key economic data is released. Next week, companies set to announce earnings include The Home Depot, Cisco Systems, Alibaba, Walmart and Applied Materials.
Additionally, important economic reports like the Producer Price Index, Consumer Price Index, Retail Sales, and Consumer Sentiment will provide further insight into the health of the economy.
Today is expected to be quieter, but with concerns over consumer spending and the economy, volatility could return next week. Investors should continue to focus on their long-term objectives and avoid making hasty decisions based on short-term market movements.
JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan
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