Dip Buying Lifts Stocks Amid Global Market Volatility

Following a day of turbulence in global financial markets, a surge in dip buying boosted stocks, led by the technology sector ahead of earnings reports from Alphabet, Google's parent company.

After a decline driven by trade war uncertainties, equities rebounded as investors analyzed a batch of corporate results. Bullish revenue forecasts from companies like Palantir Technologies and Infineon Technologies bolstered sentiment. The Bloomberg index of the "Magnificent Seven" megacaps, including Alphabet, rose by 1%. Meta Platforms Inc. surged for its 12th consecutive session, marking its longest winning streak.

"Short-term market jitters have proven to be good short-term buying opportunities," said Craig Johnson of Piper Sandler.

Data released Tuesday showed a larger-than-expected decline in US job openings, reaching a three-month low, indicating a gradual slowdown in the labor market. According to Krishna Guha of Evercore, this data reduces upside risks ahead of Friday's employment report, which is seen as favorable for the Federal Reserve and markets.

Meanwhile, initial skirmishes in the latest US-China trade war revealed a more cautious approach by Chinese President Xi Jinping compared to his stance during Donald Trump's first term. Despite reprieves granted to Canada and Mexico, the US's 10% tariffs on China came into effect on Tuesday, prompting Beijing to announce retaliatory tariffs on approximately 80 products to take effect on February 10.

The question remains if the leaders of the world's largest economies can reach an agreement before the Chinese tariffs take effect. "There is a reasonable likelihood that the ultimate impact from these tariffs may be less than expected," said Todd Ahlsten of Parnassus Investments. "These tariffs may also represent the first round of an ultimate negotiation, which could reduce their ultimate impact."

The S&P 500 gained 0.4%, the Nasdaq 100 rose 0.8%, and the Dow Jones Industrial Average fluctuated. Super Micro Computer Inc. rallied by 7% on plans to give a business update on February 11. Merck & Co. suspended shipments of its cancer-preventing Gardasil vaccine to China, causing its shares to plunge by 10%. The yield on 10-year Treasuries dipped by four basis points to 4.52%.

Alphabet's Insulation Amidst Uncertainty

Despite being targeted by Beijing in response to US trade tariffs, Alphabet's continued growth and attractive valuation may offer protection from geopolitical turmoil. China announced a probe of Alphabet's Google on Tuesday for alleged antitrust violations. Notably, the firm's search services have been unavailable in China since 2010, yet its stock rose ahead of earnings due after the close.

While Alphabet has been trading near record levels, analysts argue that it remains a bargain, particularly among megacap tech firms pioneering artificial intelligence, which has driven market growth for the past two years.

"GOOGL - the sleeper in the group, cheapest of the Mag 7, headline risk with noise around their ability to keep their lead across search and AI. But the stock is attractive," said Eric Clark, portfolio manager at the Rational Dynamic Brands Fund. "Add here for people that don’t own it."

Technology was the only sector to decline in January, despite the S&P 500 gaining 2.7% for the month, significantly exceeding the average January decline of 0.1% since 2000.

Market Conditions and Vulnerability

"US stocks managed gains in January and bounced around all-time highs, but there’s turmoil beneath the surface," said Bloomberg Intelligence strategists Gina Martin Adams and Michael Casper. "Our market pulse index suggests sentiment is manic – a warning sign of a vulnerable market just as tariffs resurface as a major risk."

The strategists noted limited turnover in component factors in January, with pairwise correlations, high minus low leverage performance, and high-yield spreads in manic territory. Three other factors – price breadth, defensive minus cyclical sector performance, and low vs. high volatility performance – remained neutral.

Historically, in the three months following Pulse readings above 0.6 (manic), the Russell 3000 delivered an average 2.9% total return, and the S&P 500 outperformed the Russell 2000 by 178 basis points. Stronger returns tend to follow panic readings, with the Russell 3000 averaging a 9% return three months later and small caps outperforming their larger peers by 133 basis points.

Market Outlook and Key Events

Looking ahead, Dan Wantrobski of Janney Montgomery Scott predicts potential volatility in US equity markets in February, with a corrective phase of -10% to -15% for the S&P 500.

Key events this week include:

* Wednesday: China Caixin services PMI, Eurozone HCOB Services PMI and PPI, US trade.
* Thursday: Eurozone retail sales, UK rate decision, US initial jobless claims, Amazon earnings.
* Friday: US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Fed speakers.