Magnificent Seven stocks rise 2.7% as tech rebounds from rout

All seven Magnificent Seven stocks opened higher Tuesday, with Microsoft leading a 2.7% gain as tech rebounded from last week's AI-driven selloff.

The S&P 500 and Nasdaq Composite opened higher Tuesday as all Magnificent Seven stocks rallied, with Microsoft gaining 2.7% to lead the rebound from last week's tech rout.

"The market is recovering its poise after last week's AI-driven selloff, but the real test comes with the Fed decision and Big Tech earnings," said Tom Lee, head of research at Fundstrat. "We continue to buy the dip."

Microsoft rose 2.7%, Google-A climbed 2.4%, Meta gained 1.72%, Amazon added 1.01%, Apple advanced 0.83%, Tesla rose 0.54% and Nvidia edged up 0.15% at the open. The rally comes after Asian chipmakers led a brutal selloff, with South Korea's KOSPI falling 5% and MSCI's broadest index of Asia-Pacific shares outside Japan slipping 1%, set for an 8% monthly drop. Japan's Nikkei fell 1% and is bracing for a more than 10% decline in July.

The rebound faces a critical test later this week as the Federal Reserve delivers its rate decision Wednesday and Microsoft and Meta report earnings. Traders are pricing in a 33% chance of a rate hike, according to Fed funds futures, while oil prices jumped 3% to $86.80 per barrel after fresh attacks in the Middle East. The U.S. 10-year Treasury yield held near 4.62% as investors weighed inflation risks against the AI-driven growth narrative. The dollar index was perched near a one-month high ahead of the decision.

The Magnificent Seven have been at the center of this year's AI rally, but recent earnings from Alphabet and Tesla spooked investors with negative cash flow reports, raising questions about the sustainability of AI spending. Shares of SK Hynix fell 9% in Seoul even after the chipmaker increased quarterly operating profit more than sixfold, as investors digested results that missed lofty expectations.

Fundstrat's Lee drew parallels to Cisco Systems in the late 1990s, which fell 40% before rallying to new highs, arguing that patient investors will be rewarded. "The big money is not in the buying and selling but in the waiting," Lee said, citing Charlie Munger's adage.

The advance-decline ratio on the New York Stock Exchange showed roughly two gainers for every decliner in early trading, while the Cboe Volatility Index eased from last week's elevated levels as the market stabilized. Brent crude's surge to $86.80 per barrel added another layer of complexity for the Fed, with some policymakers fretting openly about inflation pressures from rising energy costs.

"With the FOMC meeting sandwiched between major US tech earnings this week, and expectations for AI capex already elevated, investors appear to be taking some risk off the table ahead of a critical test for both AI spending expectations and market liquidity," said Gary Tan, portfolio manager at Allspring Global Investments.

This article is for informational purposes only and does not constitute investment advice.