Dow and Nasdaq up more than 200 points amid recovery in battered tech sector

Wall Street closed sharply higher on Monday, helped by gains in tech stocks as investors kicked off a profitable week with renewed enthusiasm for market-leading stocks that failed last year.

The Dow Jones Industrial Average jumped 254.07 points, or 0.8%, to 33,629.56, the Nasdaq rose more than 200 points, or 2%, and the S&P 500 rose 1.1%.

“(Chips) is a group that’s depressed, so I’m not too surprised,” said Peter Tooze, president of Chase Investment Counsel in Charlottesville, Virginia. “We’ll see profits from these companies over the next few weeks and that’s where the rubber meets the road.”

“This is a group that is ripe for recovery.”

The session marks the calm before the storm for a week filled with important earnings and loss reports, as well as important economic data.

Investors are almost certain that the Federal Reserve will implement a modest interest rate hike next week, even as the central bank remains committed to taming the hottest inflationary cycle in decades.

“(Investors) are quite happy that they will see lower rate hikes from the Fed, that we are getting closer to inflation and higher interest rates,” Tooze added. “Stocks can do well in this environment, especially the big growth stocks that drive the market.”

According to the CME FedWatch tool, financial markets have priced in the likelihood of a 25 basis point hike in the Fed funds target rate by 25 basis points at the close of the two-day monetary policy meeting next Wednesday.

Analysts are now forecasting fourth-quarter S&P 500 total earnings to fall 3% year-on-year, nearly double the 1.6% year-over-year drop seen at the start of the year, according to Refinitiv data.

Investors are watching the results of Microsoft, Tesla, IBM and Intel this week to see how their businesses are handling the threat of an economic slowdown caused by the Federal Reserve’s aggressive tightening.

Investors are also waiting for Q4 manufacturing and GDP data in January to assess the impact of the Fed’s rate hike on the economy.

While the latest data signal lower inflation, a tight labor market could keep the central bank on the path to aggressive tightening until rates rise above 5%, the level supported by most policymakers.

Cloud-based software company Salesforce surged 3% to become the top Dow component after activist investor Elliott Management made a multibillion-dollar investment in the company, according to people familiar with the matter.