US stocks started the week on a strong note. On Monday, October 26, the S&P 500 rose about 0.7%, the Nasdaq gained about 0.8% and the Dow added 146 points (+0.28%). Technology, consumer discretionary and industrial stocks led the advance as the AI trade bounced back after several difficult weeks.
Why tech stocks had been falling
In recent weeks, technology shares came under pressure due to concerns about the debt being used to fund AI investment, the impact of high interest rates on valuations, and doubts about whether AI demand can keep growing at its current pace. Those fears triggered a sharp selloff last Thursday, which also sent bond yields sharply lower.
A big week for markets
Monday’s rebound sets the stage for a week packed with potential market-moving events:
- Big Tech earnings: Alphabet, Microsoft and Amazon all report results. Investors will focus on cloud growth, AI spending plans and whether that spending is producing revenue.
- Fed meeting (Wednesday): Rates are expected to stay unchanged, but the outlook for a possible December hike will matter for valuations.
- Economic data: ADP employment and September durable goods orders give fresh signals on the economy.
Stocks versus 5% yields
With the 10-year Treasury yield close to 5%, stocks face tough competition from “risk-free” bonds. When safe government bonds pay around 5%, investors demand stronger earnings growth to justify high stock valuations, especially for fast-growing tech companies whose value depends on profits far in the future.
What it means for traders and investors
- Expect volatility around earnings: large-cap tech stocks can move several percent after results, which can swing the whole Nasdaq.
- Watch guidance on AI spending: markets are rewarding clear returns on investment and punishing open-ended spending.
- Keep an eye on yields: a jump in bond yields after the Fed could quickly cool the rally.
Bottom line: The rebound is encouraging, but this week’s earnings and the Fed’s message will decide whether the AI trade has truly recovered or whether Monday was just a relief rally.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Trading forex and CFDs carries a high level of risk and may not be suitable for all investors. Market levels quoted are approximate at the time of writing.