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Investors flocked back to the tech behemoths that had triggered a sell-off earlier in the week, propelling Wall Street's major indexes to a higher close on Friday. The Dow Jones Industrial Average surged more than 1.6%, while both the S&P 500 and NASDAQ ended just above 1%. Amid this resurgence, five of the so-called Magnificent Seven stocks rose, with Meta Platforms leading the pack with a gain of over 22%. However, Tesla and Alphabet, whose lackluster earnings had sparked Wednesday's market rout, remained the outliers.
The immediate outlook for the markets may hinge on the earnings results of these tech giants, especially as they pertain to their AI investments. Anna Rathburn, Chief Investment Officer at CBIZ Investment Advisory Services, highlighted the investors' growing impatience. "We've given you AI-related hype for over a year," she noted. "Now we want to see some quantitative metrics on the ROI of these billions of dollars you're putting into AI." Alphabet's failure to meet these expectations has set the stage for potential disappointment if other AI-focused companies don't deliver solid results next week.
Amid the tech stocks' recovery, other notable movements caught the market's eye. Deckers Outdoor leaped more than 6% after raising its annual profit forecast, signaling a positive outlook for the company. Norfolk Southern soared nearly 11% in its largest one-day percentage gain since March 2020, thanks to robust pricing and a strong second-quarter profit report. On the flip side, medical device maker Dexcom slumped over 40% after cutting its annual revenue forecast, casting a shadow over the otherwise sunny market mood.
Friday's data revealed a moderate rise in US prices, indicating a cooling inflation trend. This development will be closely watched by investors as they look to the Federal Reserve for possible signals of a September rate cut. The Central Bank's upcoming two-day policy meeting next week will be a focal point for market watchers, as it could provide critical insights into the direction of monetary policy and its impact on the markets.
In conclusion, the tech giants' bounce back has injected a sense of optimism into Wall Street. However, the true test will come as these companies report their AI-related earnings and face the scrutiny of investors demanding tangible results. Will the Magnificent Seven rise to the occasion, or will they fall short of expectations? Stay tuned.
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