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Where Are Tech Stocks Headed after Their Rally?

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Jan. 23 2019, Published 2:32 p.m. ET

Tech stocks have bounced

The markets have bounced since Christmas after a fourth quarter that saw investors’ risk appetite take a huge hit.

The tech-heavy NASDAQ Composite Index has bounced 15.7% since Christmas Eve and 8.5% year-to-date.

Some risk appetite has returned after a number of companies announced solid fourth-quarter earnings results. The question is whether the momentum will continue or whether this is just one of those bear market rallies.

While banks’ recent earnings may have been uninspiring, the core businesses of all big banks seem to be in good shape, suggesting that the economy is still in a good place.

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The macros aren’t as bad as we thought

There’s no doubt that this macroeconomic cycle is long in the tooth. While job creation is still healthy, the unemployment rate is at 3.9%, signaling that the economy may have already peaked.

The latest US purchasing managers’ index numbers suggest that managers are not as confident about the economy. Additionally, consumer confidence has weakened. The slowdown in China is particularly worrying.

The upcoming earnings releases of tech giants will give us more signs of whether the tech rally will continue. While the markets weren’t impressed by Netflix’s (NFLX) earnings report, the streaming giant did announce solid subscriber numbers.

The overall earnings season, which we’re currently in the middle of, will likely decide the direction of the market going forward.

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