Stocks Bounce Back Despite Tech Earnings Disappointment
Major US stock indices rebounded on Monday, driven by gains in most industries. However, underperforming earnings from tech giants weighed on the market.
The S&P 500 added 0.1%, led by semiconductor company Nvidia Corp. However, the "Magnificent Seven" megacaps, including Google's parent company Alphabet Inc., declined by 1.7% as Alphabet's disappointing results dragged down its stock. Advanced Micro Devices Inc. plummeted 8% after issuing a bleak outlook.
Treasury yields reached their lowest levels since 2025 as data showed a decline in new orders placed with US service providers. Market volatility has been fueled by mixed economic data, trade tensions, and concerns about returns on investments in artificial intelligence (AI).
"Investors should be aware that unexpected volatility can emerge," said Mark Hackett of Nationwide. "Equity market performance over the year is less important than navigating volatility throughout."
Alphabet's results have raised questions about capital expenditures among tech companies. Despite contributing significantly to S&P 500 gains over the past two years, their profit growth is slowing.
"We prefer large caps, especially S&P 493 companies," said Ed Yardeni of Yardeni Research. "They can adopt productivity-boosting technologies and expand profit margins."
The Nasdaq 100 remained relatively unchanged, while the Dow Jones Industrial Average rose 0.3%. UnitedHealth Group Inc. pared losses after reaching out to the US Securities and Exchange Commission regarding concerns raised by investor Bill Ackman. Uber Technologies Inc. slid 7% on a weak gross bookings forecast.
The yield on 10-year Treasuries declined, and the Bloomberg Dollar Spot Index fell 0.3%.
AI Spending Under Scrutiny
Tech giants have significantly increased capital expenditures, particularly in property and equipment, with the "Magnificent Seven" alone spending 40% more in 2024 than the previous year.
However, concerns about the monetization of AI investments have arisen, especially after DeepSeek, a Chinese AI startup, unveiled a powerful AI model at a significantly lower cost.
"The release of a more efficient AI model by DeepSeek has renewed questions about AI capex," said BlackRock Investment Institute strategists. "The AI buildout continues, with total capital investment by mega-cap tech stocks matching government R&D levels."
Corporate Highlights
* Chipotle Mexican Grill Inc.'s sales growth fell short of expectations.
* Walt Disney Co. reported strong fiscal first-quarter results, boosted by the movie Moana 2 and streaming revenue.
* Johnson Controls International Plc gained after raising its profit forecast and appointing a new CEO.
* Electronic Arts Inc. reported underperforming EA Sports FC, which had raised investor concerns.
* Harley-Davidson Inc. missed revenue estimates in the fourth quarter.
* Match Group Inc. named Spencer Rascoff as its new CEO, replacing Bernard Kim, who failed to reverse the decline in Tinder subscribers.
* Snap Inc. issued a disappointing earnings outlook, despite strong revenue growth in the previous quarter.
Key Upcoming Events
* Eurozone retail sales (Thursday)
* UK interest rate decision (Thursday)
* US initial jobless claims (Thursday)
* Amazon earnings (Thursday)
* US nonfarm payrolls, unemployment, and University of Michigan consumer sentiment (Friday)