Can Big Tech Keep Carrying the Market?

Big Tech earnings are powering markets higher, fueled by aggressive AI investment and surprisingly strong growth but are valuations starting to matter again? We break down the tension between earnings momentum and rising rate risks and what upcoming jobs data could mean for the market’s next move.

Summary – IBKR Podcasts Ep. 380

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hi, everyone. This is Jeff Praissman with the Interactive Brokers Podcast, and it’s my pleasure to welcome back to the podcast studio Scott Bauer from Prosper Trading. Hey, Scott. How are you? 

Scott Bauer

Jeff, we are busy. How about yourself? 

Jeff Praissman

I’m good. I’m good. It is busy out there. And I mean, you know, we are in the middle of earnings season, and last week, you know, felt like earnings and the Fed were pulling the markets in opposite directions. What was the single biggest driver of market performance over the, you know, the past five days? And, you know, why did investors ultimately lean into it? 

Scott Bauer

You know what? It was definitely earnings, and it was earnings from the big guys. And to me, the most important part was we still saw this just massive amount of CapEx spending, right? And for the most part, it was well-received across the board, with maybe the exception of Meta. But the market really bought into the AI growth monetization, and, you know, that’s been an issue maybe in the last several quarters with how much these companies are spending. But boy, oh boy, you look at the likes of the big guys there—especially Alphabet was probably the standout one there—but you look at how much they’re spending here, and the market seems to embrace it. 

Jeff Praissman

Yeah. I mean, big tech was definitely back in focus last week. And, you know, do you think valuations are starting to matter again then? 

Scott Bauer

I think they are. But if you look at the blended earnings growth rate for the S&P 500 for the first quarter—it actually increased just tremendously, 15% to 27%. And if 27%, if that stays as the actual growth rate for the quarter, that’s gonna be the highest year-over-year rate that we’ve seen in, I think, five years or so. Now, is there a concern that, you know, that growth can continue? Sure. But right now it is pedal to the metal. 

Jeff Praissman

Tech and stocks are obviously on everyone’s mind. We can’t forget about, you know, commodities, especially oil, right? And, you know, how much of last week’s volatility was driven by the oil market? 

Scott Bauer

You know—oh, sorry, go— 

Jeff Praissman

Oh, no, go ahead. I was just gonna say, like, you know, should investors be paying, you know, closer—even closer—attention to this inflation spillover coming from energy? 

Scott Bauer

Yeah, the inflation spillover is definitely going to be an issue. It hasn’t really hit the market yet. We’re gonna see that maybe in another month or two. But, you know, Jeff, it’s—and I’ve had this conversation—it’s really interesting because I think the market is becoming somewhat numb from the noise. You know, if this was a month ago and we would’ve, you know, got another headline of an escalation or something like that, we would’ve seen VIX over 25. We would’ve seen a bigger sell-off. And the more and more this happens, the less and less reaction there is in the marketplace. However, we can’t take our eyes off of what is happening to oil and eventually what’s gonna happen to inflation. 

Jeff Praissman

Yeah, I was gonna say, and, you know, rates stayed on hold, but the bond markets didn’t exactly relax, did they? 

Scott Bauer

No. 

Jeff Praissman

Yeah. How should investors interpret the Fed’s tone from last week’s meeting? And, you know, what does it say about, you know, the potential path of rates from here? 

Scott Bauer

I think we need to be a little concerned about it. I think, you know, the bond market is bigger than the equity market. Fixed income typically is kind of a precursor, maybe, to what happens, even though the equity market has just shrugged this off. But, you know, we’re seeing the Fed actually probably shift their bias to maybe raising rates. In fact, I think if we go out to March of next year now, the CME FedWatch Tool is pricing it better than a 50% chance of a hike, not a reduction in rates. 

Jeff Praissman

And, you know, looking ahead at the next seven days, the calendar’s really busy. You know, what upcoming economic data points—whether it’s jobs, inflation, or, you know, services activity—what do you think has the greatest potential to move the markets? 

Scott Bauer

I think the jobs number that we get on Friday—and I think the potential is actually to see rates move higher. The expectation is, I think, somewhere in the range of 60,000 to 65,000. If we beat that—and we beat that substantially, which would be a good thing, right? We wanna see job creation—boy, that is really going to put pressure on the Fed, really probably shift that bias even further to a potential rate hike. So I think we really need to watch that number. 

Jeff Praissman

Scott, this has been great, as always. For our listeners, you can find more from Scott Bauer at prospertrading.com. Also on our website, ibkr.com. Click on Education. You can find all our past podcasts, webinars, articles. And, you know, until next time, Scott, thanks for coming by. 

Scott Bauer

Thanks, Jeff. Always a pleasure. 

Jeff Praissman

All right.