The technology shows that this is the key to getting the market out of a rocky start into 2024

The main drivers of the late 2023 stock market rally have faded.

As investors increasingly question when the Federal Reserve will cut interest rates, the so-called soft bear trade that saw investors flock to interest rate-sensitive sectors to start 2024 has faltered.

This raises the question of what the next catalyst will be – and investors may need to look no further than the technology sector (XLK). Despite the recent frenzy over small caps and other hot trades that could benefit from interest rate cuts by the Fed, tech gains over the next few weeks will remain key to pulling the market out of the January slump.

For Keith Lerner, co-chief investment officer at Truist, it's a simple mathematical equation. With the technology sector representing nearly 30% of the S&P 500, by far the largest portion of all 11 sectors, and Magnificent Seven technology stocks alone making up nearly 30% of the index's market capitalization, moves in those areas remain crucial for investors in… Broader indicators.

“With the focus that you still have, I think technology is showing earnings and the ability to grow earnings at a good pace, even if we have a decline in growth, which is very important to keep this market moving forward,” Lerner said. Yahoo Finance on Wednesday ahead of technology earnings.

Taiwan Semiconductor (TSM) took the lead role on Thursday, as the chipmaker, which supplies companies like Apple (APPL) and Nvidia (NVDA), reported quarterly results before the opening bell that beat estimates and pushed the stock up nearly 10%.

The company's adjusted earnings per share of $1.48 came in above Wall Street expectations of $1.38. Perhaps more importantly, the chipmaker said AI is fueling its success. Taiwan Semiconductor Co. said it expects revenue to grow 20% in 2024 due in part to demand for artificial intelligence.

The news sent the Semiconductor Index (^SOX) up more than 3% while Nvidia (NVDA) rose 3%. Which has a weight in the S&P 500 index of approximately the same size The entire energy sectorIt rose more than 2% before paring gains.

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The move in semiconductors, combined with an upgrade in Apple ( AAPL ) stock from Bank of America, sent the iPhone maker's shares up more than 3% on their best day since May. Analyst Wamsi Mohan moved his rating to Buy from Neutral and raised his price target to $225 from $208, citing artificial intelligence and the new Vision Pro headset as key drivers.

Stock moves in Apple and chips sent the tech-heavy Nasdaq ( ^IXIC ) rising more than 1.3% on Thursday, while the S&P 500 ( ^GSPC ) added nearly 1%.

BofA's research represents a reversal in the recent narrative on Wall Street that has analysts turning bearish on Apple amid questions about demand for the iPhone, among other issues. This comes at a critical stage before Apple's earnings announcement, scheduled for February 1.

Other tech giants are also expected to report in the next two weeks, starting with Netflix on January 23, and Wall Street strategists expect these reports to be a turning point for the market.

“Companies have been cutting costs throughout the earnings slump,” Osung Kwon, equity strategist at Bank of America, told Yahoo Finance in early January about what could push stocks higher. “They've been able to manage margins. Margins are up for the second quarter in a row. So I think the momentum is heading higher, and if companies talk more positively this earnings season, given that price pressure and overall uncertainty have eased somewhat, now, that's That means it will be bullish for stocks.”

Right now, technology is the sector that checks these factors and drives the averages higher with them.

Josh Schaeffer is a reporter for Yahoo Finance.

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