ETFs tied to the Nasdaq 100, Dow Jones, and S&P 500 indices, such as QQQ, DIA, and VOO, have pulled back over the past few weeks as jitters surrounding the AI sector have spread. The tech-heavy Nasdaq 100 has been the hardest hit because of the ongoing sell-off in AI stocks. This article examines the top catalysts likely to move these assets this week.
US stocks to react to rising AI jitters
The main catalyst for VOO, DIA, and QQQ is the rising jitters surrounding the AI industry. These jitters escalated in Asia, where Kioxia Holdingsprovided a weak operating profit guidance, pushing its stock down by over 15%.
The company’s guidance is notable because it is a barometer of the AI industry, where it is a top seller of storage devices. These numbers came as signs of funding challenges in the industry, with OpenAI raising just $11 billion of the $30 billion it was targeting.
Therefore, investors will be more sensitive to any major negative story related to the AI industry. For example, the ETFs dropped last week after top companies like Amazon and Alphabet plunged following their earnings reports.
Hundreds of corporate earnings
The other key catalyst for these ETFs is that hundreds of companies are expected to publish their earnings this week. Apple, the biggest company in the world, will be the first big name to release its earnings report.
Analysts are highly bullish on Apple because it has maintained its conservative approach in the AI industry. Unlike large companies like Google, Amazon, and Meta Platforms, Apple is not spending hundreds of billions of dollars in capital expenditure.
Instead, the company is spending its resources on improving its AI features, including Siri. As a result, it is generating billions of dollars in free cash flow as the other large names make negative free cash flow.
Some of the other top companies that will release their earnings are Palantir Technologies, Vertex Pharmaceuticals, Marriott International, AMD, Arista Networks, Shopify, Arm Holdings, and Qualcomm.
US nonfarm payroll data
Another reason why the QQQ, DIA, and VOO ETFs have pulled back is that the Federal Reserve has maintained a hawkish tone. It recently hiked interest rates by 0.25% to combat the rising inflation in the US.
The bank left interest rates unchanged between 3.75% and 4% in its meeting last week. Therefore, this week’s jobs numbers will provide a cue on whether the bank will hike rates next month.
ADP will release the private payrolls report on Wednesday, while the Bureau of Labor Statistics (BLS) will publish on Friday. Strong jobs numbers mean that the Fed will hike rates, while a weak report may push it to pause.
US midterm elections
The US stock market will react to the upcoming midterm elections, which will determine control of Congress. Most analysts expect that the Democrats will win control of the House and possibly the Senate.
For now, there will be no immediate impact in terms of policy as the new Congress will be sworn in in January. A divided Congress will make it harder for politicians to pass any meaningful bill like tax cuts, spending, and regulatory changes.
History, however, shows that the US stock market does well regardless of who is the president and who controls Congress. For example, stocks hit several record highs during Joe Biden’s era, even when Republicans won midterms.