Tech stocks rebound 0.9% as dip buyers test sell-off resolve

Dip buyers returned to US equity markets Monday, lifting the Nasdaq Composite 0.9% after Friday's 4% rout — the index's worst session in more than a year.

The Nasdaq Composite rose 0.9% on Monday, recovering a fraction of its 4.1% plunge Friday — the worst single-day drop in more than a year — as dip buyers targeted semiconductor and memory stocks that had led the sell-off.

"I would be careful about taking one bad day in semiconductors and extrapolating the start of a new trend," Hank Smith, director and head of investment strategy at Haverford Trust, said in written commentary. "We continue to think this is a healthy correction within a bull market."

The PHLX Semiconductor Index surged more than 5%, its strongest session since the sell-off began. Intel jumped 11% after The Information reported Google and Nvidia were considering the chipmaker as a backup manufacturer. Micron Technology gained 10%, and Marvell Technology rose 10% on news it would join the S&P 500. The S&P 500 Information Technology sector led the broader index with a 1.5% advance, while the benchmark S&P 500 added 0.3%. The Dow Jones Industrial Average slipped 0.1%.

The rebound faces a critical test Wednesday when the May Consumer Price Index is expected to show inflation surged above 4% for the first time since 2023, a reading that could reinforce the Federal Reserve's hold on interest rates after Friday's stronger-than-expected jobs report dashed Wall Street's hopes for cuts this year.

The rally unfolded against a backdrop of rising headwinds. The 10-year Treasury yield climbed to 4.56%, up from 4.52% at Friday's close, extending a move that began after the May payrolls report. Oil prices added pressure after Iran and Israel exchanged missile fire over the weekend, though both sides confirmed a ceasefire by Monday afternoon. West Texas Intermediate crude settled up 1% at $91.40 a barrel, while Brent crude rose 1.2% to $94.25.

Analysts Split on Whether Rally Has Legs

Bank of America analysts on Monday encouraged clients to "take profits," noting that seven of 10 sell signals they track flashed in May — the same number that has historically coincided with market peaks. The gap between the best- and worst-performing tech stocks widened to 120 percentage points, the largest divergence since February 2000 before the dot-com bubble burst, according to BofA.

"The hot jobs number takes March off the table for cuts," the analysts wrote, adding that they see opportunity in individual S&P 500 stocks but not the cap-weighted index. They expect the S&P 500 to fall about 6% by year-end.

Morgan Stanley struck a more optimistic tone, arguing that earnings remain strong and broader than most believe. The firm expects the S&P 500 to rise 7% to 8,000 by year-end as market leadership broadens beyond memory and semiconductor stocks. "A correction was inevitable and ultimately healthy if this bull market is going to extend into year-end, which remains our baseline," Morgan Stanley analysts wrote.

Nancy Tengler, CEO of Laffer Tengler Investments, said her firm is trimming stakes in its best-performing holdings, including Micron and Lam Research, to make room for new market leaders. She pointed to SpaceX's potential IPO — which could raise $75 billion and value the company at $1.75 trillion as early as this week — and upcoming listings by AI labs Anthropic and OpenAI as the next big opportunities drawing trader attention.

The tech sector weakness that rattled US markets Friday also spread across the Pacific. South Korea's Kospi Index, up 93% year-to-date heading into this week, tumbled more than 8% Monday as investors sold high-flying chip stocks including SK Hynix and Samsung. China and Hong Kong stocks hit two-month lows, with the CSI300 and Shanghai Composite both declining.

The dollar index slipped 0.1% to 100.01, while gold futures edged down 0.3% to $4,350 an ounce.

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