Tech Titans Stage Furious Comeback - Dividend Stocks Rejoice?
The high-flying tech trade roared back to life today in a shocking intraday reversal that gives dividend investors hope of a sustained rally.
After getting crushed in early trading on a hotter-than-expected inflation report, the tech-heavy Nasdaq Composite flipped the script in dramatic fashion. The index erased a 2.5% deficit to close up 2.17% at 17,395, while the S&P 500 rallied 1.07%.
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Semis and Megacaps Lead the Charge
Driving the remarkable turnaround was the red-hot semiconductor sector, with Nvidia skyrocketing 8% after CEO Jensen Huang touted the firm's AI capabilities. The chip stocks caught fire, sending the SMH semiconductor ETF soaring over 5%.
The intraday swing saw beaten-down megacap tech and growth names come storming back as well. Apple, Microsoft, Amazon and the Philadelphia Semiconductor index all surged over 2% off their morning lows.
Fed Pause Hopes Fuel the Buying
The furious dip-buying emerged as traders reassessed the inflation data and doubled down on bets the Fed will approve just a 25 basis point "baby hike" next week.
While the core CPI reading ticked up more than expected, the overall trend showed inflation continuing to decelerate. Fed funds futures now imply an 85% chance of a quarter-point move, up from 65% pre-CPI. Investors are increasingly pricing in a hawkish "pause" after September as past rate hikes work through the economy.
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Could a Melt-Up Be Ahead for Tech Dividends?
That's stoking speculation of a potential melt-up rally in risk assets, especially in the beaten-down tech sector rich with dividend payers. Despite their strong cash flows, tech dividend stocks have been hammered over the past 18 months amid the Fed's aggressive tightening.
The Nasdaq remains nearly 15% below its record peak, trading at just 26 times forward earnings - well below its 10-year average around 30 times. If interest rates stabilize, these compressed valuations could see a massive snapback as short-sellers are forced to cover and institutional money piles back in.
Key Level: Nasdaq's 200-Day at 17,800
Wednesday's resurgent buying may offer a taste, with the Nasdaq reclaiming its 50-day moving average. The next major upside level technicians are watching is the 200-day at 17,800. A decisive breach could embolden momentum traders to drive benchmarks to new highs for the year.
Of course, the whole narrative hinges on the Fed next week. If they push back against market pricing and signal more hikes are needed, tech and growth could be in for another world of pain. But if the long-awaited pivot arrives, portfolios with exposure to high-quality tech dividends may be prime beneficiaries of an epic melt-up move.
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