Is Big Tech Reclaiming the Throne?

Big Tech is showing renewed strength as market leadership broadens beyond a narrow group of names. In this IBKR Podcast episode, Kevin Davitt of Nasdaq joins Andrew Wilkinson to break down what’s driving the rally, the role of semiconductors, consumer resilience and whether Big Tech is reclaiming its place at the center of market influence.

Summary – IBKR Podcasts Ep. 346

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.

Andrew Wilkinson

Welcome to another episode of IBKR Podcasts with me today, Head of Index Options Content at the NASDAQ in Chicago, Kevin Davitt. How are you, Kevin? 

Kevin Davitt

Andrew, I’m doing really well. What about yourself? 

Andrew Wilkinson

Doing very well for a very frosty morning here in Greenwich, Connecticut. 

Kevin Davitt

I’ll hear none of it in Chicago. None of it. 

Andrew Wilkinson

We—we got another… they’re not even calling it a nor’easter anymore. I guess it’s coming from the opposite direction. It’s a south-southwesterly, but we got— 

Kevin Davitt

You guys are going to have a 50-degree day before long, and I just don’t have time for this. 

Andrew Wilkinson

Not before we get another 17 inches of snow this weekend. 

Kevin Davitt

Okay. That I don’t envy. 

Andrew Wilkinson

So, Kevin, we’re back to record highs for several stock markets around the world. What’s driving markets right now?

Kevin Davitt

So I think that question could be answered kind of a handful of ways, which is a good thing, and it split sort of depends on your time horizon. I think if you took a broader base view, which I think makes a lot of sense when you’re talking about all-time highs, I would argue that equity markets kind of continue to trend higher on the back of strong and growing earnings. We’re going to get more insight with respect to that from some really influential mega-cap names this afternoon, tomorrow, and next week. You continue to see, on a global basis, fairly accommodative liquidity or rate conditions. And I think you also continue to see reduced regulatory burdens and a resilient consumer. We focus—or we have over the past couple of years—focused a great deal of attention on inflation data. Now, despite that, the American consumer continues to spend. I think one of the points we’ll talk about maybe later will be the labor market. I think that’s super important. 

If I took a narrower view to this question with respect to time—and I, as the audience might know, tend to see the world through the lens of the NASDAQ 100—I’d argue that the recent move has been driven largely by kind of hardware and semiconductor manufacturing names: the likes of Micron, AMD, AMAT, LAM Research, KLA-Tencor. We got a report from a European constituent in the NASDAQ 100, ASML, last night—did exceptionally well. Alphabet continues to lead this year after being a real major driver of index performance last year. I’d also highlight, again, coming back to that consumer portion, the resilience of the consumer with names like Costco, up 12.5%, and Walmart—which was added to the NASDAQ 100 just this year—up 5%, and Amazon up 6%. So again, going a little bit back, broad view from my perspective: Walmart’s recent inclusion in the NASDAQ 100 I think is indicative of an evolution within the index and, as an exchange operator, that inclusion—where I believe right now it’s a top 10 constituent, I think it’s number nine, with like a 3% weight—reflects a diverse index that is growing in terms of constituency. 

Andrew Wilkinson

Very interesting. Let’s move on to the next topic. I’m gonna come back to the Magnificent Seven later—you referenced a lot of those names there. It’s FOMC day. The Fed’s gonna make a decision on interest rates today, and by the time a lot of our listeners will have listened to today’s podcast, the Fed will probably have done nothing. Are we gonna see— 

Kevin Davitt

Just to be clear, I’m somebody that thinks primarily through the lens of option markets. I’m not an economist. You often have Michael nor my colleague on, or Phil Mackintosh, and they think very much about those macro events. My tendency, again, through the derivatives lens, is to look at something like the Fed Funds futures pricing. What is that telling us right now? Because markets’ impressions are valuable—there is information there. And just to be clear for the audience, the Fed directly sets very short-term lending rates, and despite cutting those short-term rates since, I believe, August of 2024, the 10-year yield over that same timeframe has moved up from somewhere in the ballpark of 3.7% to like 4.25%, 4.3%. 

The market now—which can change—is pricing somewhere between one and three rate cuts potentially by the end of the year. I should be more clear about that: one to three 25-basis-point cuts. So let’s call it two, right? Could that happen by the end of the year? Yes, absolutely. The bigger question, I would argue, is about that inflation rate, which I referenced, and the labor markets. I think there’s significantly less clarity there, but that would be sort of where I would focus my attention as far as positioning and potential derivative risk-management tools. 

Andrew Wilkinson

I get the impression—and you mentioned something about the big names earlier on—that there’s been a return of the Magnificent Seven. I think when we spoke a couple of weeks ago, we were both kind of somewhat impressed with the bifurcation in the technology rally. Do you think the Magnificent Seven’s come back into vogue all of a sudden? 

Kevin Davitt

So I like the way you frame it. Maybe I’m skewed by my position, but I would kind of argue that the Mag Seven—or “lead eight,” or kind of whatever moniker you want to apply to it—is factored into overall market outlook. No matter whether you’re focused really exclusively on one of those names or not, the performance there is, in some ways, kind of table stakes. And going back to our point from a couple of weeks ago, I’m excited to see this kind of continued broadening of earnings growth. I mentioned some hardware names, like those semi names that have become very strong performers that have gotten less attention in the two years prior. So this sort of broadening of the narrative beyond that real hyperscaler, AI-centric one I think has led to a broader, more resilient market and sustained pushes toward, as we see today, new all-time highs. So I think the Mag Seven and the NASDAQ 100 are kind of broadly at the epicenter of market influence these days, but the narrative is more inclusive, and that’s something that I welcome. 

Andrew Wilkinson

What are some of the headlines in the text, Kevin, that you believe are helping? 

Kevin Davitt

So we’re gonna get a lot more clarity on this probably by the next time you and I speak, but the expectation—and much of the rally over the past two and a half, three years—has been led by earnings growth. We have not seen real P/E appreciation over that timeframe because earnings have been so strong and margins have been so strong. I think that continues to be the case, with sort of potential risks—speed bumps in the form of geopolitics or perhaps inflation rearing its head. And so while it might not be super actionable, the broad-based landscape I think remains the same, and that emphasis on real, robust growth is the focus. And so long as that’s the case, the backdrop seems fairly positive. 

Andrew Wilkinson

Kevin, you’ll give us an update in a couple of weeks’ time. 

Kevin Davitt

I would love to. 

Andrew Wilkinson

Alright, brilliant. Thank you very much for joining me again today. 

Kevin Davitt

Thank you for having me. 

Andrew Wilkinson

And to the audience, thank you for listening. And remember, if you enjoyed today’s episode, please subscribe wherever you download your podcasts from. Bye for now.