After a turbulent period in 2022, circumstances appear much more fortuitous in the new year for the technology sector. With the Federal Reserve possibly signaling a less-aggressive framework moving forward, the benchmark S&P 500 bounced conspicuously higher. In addition, an encouraging earnings disclosure by deeply embattled Meta Platforms (NASDAQ:META) helped address the question, why are tech stocks up today?
Primarily, the equities sector broadly responded well to the Federal Reserve’s announcement of an expected 25-basis point interest rate hike. First, that the central bank responded with a relatively modest hike in response to the slowing pace of inflation indicated policymakers wouldn’t be reckless with its monetary strategy. As well, Fed Chair Jerome Powell’s remarks left some room for an accommodative tactic should economic conditions deteriorate beyond expectations.
Louis Navellier, chief investment officer of Navellier Calculated Investing, explained the overall framework for the inquiry, why are tech stocks up today:
“We’ve gone from a ‘Don’t fight the Fed’ world to a ‘Don’t fight the market.’ No one appears to believe or fear central banks, and the Bears are getting mauled. The fear of missing out is likely to bring in an increasing amount of the huge amount of cash on the sidelines into the fray.”
Indeed, prior to the Fed rate hike announcement, the capital markets approached it with pensiveness. Gaining clarity on a vital macro influencer, investors began reengaging equities, particularly risk-on assets.
Why Are Tech Stocks Up Today?
The other factor to consider regarding why tech stocks are up today centers on Meta Platforms. In 2022, META stock lost around 64% of equity value, a staggering underperformance relative to its usual dominance. However, its latest earnings disclosure boosted investor confidence.
To be clear, InvestorPlace Writer William White notes the fourth-quarter results themselves came in mixed. On the top line, Meta’s revenue of $32.17 billion beat the consensus target calling for $31.68 billion. However, on the bottom line, the tech firm reported diluted earnings per share of $1.76. This ranked well below the consensus expectation of $2.22.
However, CEO Mark Zuckerberg framed the discussion positively, noting that Meta will focus on efficiency this year. Further, the head exec claimed his company will become a “stronger and more nimble organization.”
Bank of America analyst Justin Post – who upgraded META – chimed in, stating that Meta’s “new efficiency mentality” should position the company for strong EPS growth once the digital advertising environment improves.
Interestingly, in October last year, Post downgraded META to “neutral” from “buy.” At the time, the analyst worried about “added uncertainty on 2023” forced a cautionary take on Meta’s prospects. With a major sticking point out of the way, the sentiment lift not only boosted META by 25% for the day, it also provided a specific insight to why tech stocks are up today.
Why It Matters
Although the enthusiasm in the tech space inspired investors on Thursday, the market’s not completely out of the woods. Looking ahead, analysts now turn to the January employment report, due tomorrow. Per FactSet data, economists anticipate an increase of 185,000 jobs, down from the 223,000 jobs added in December.
Notably, the tech sector itself contributed to ongoing mass layoffs. While the Fed wants to slow the overcooked employment market to help tame inflation, too severe an erosion may lead to a full-blown recession.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
