Stocks opened last week with a big rally. The S&P 500 rose 1.5% on Monday, and the Nasdaq closed at a record high as oil prices and bond yields fell. The reprieve didn't last. The 10-year Treasury yield climbed to 5.17% by Friday's close, its highest level since 2007. The S&P 500 still finished the week up 1.2%, and six of the 11 sectors rose. Information Technology (MW) led with a 3.1% gain, followed by Communication Services (MW) at 2.2% and Health Care (OW) at 1.7% (chart). Utilities (OW>MW) was the weakest performer at -3.2%, followed by Energy (OW) at -3.0% and Financials (OW) at -1.6%.
Here's more on the S&P 500 Information Technology, Utilities, and Materials sectors:
(1) Information Technology. Monday's rally was led by chip stocks, which jumped on early signs of success for Meta's Muse agent. AMD rose 10% to close above $1 trillion in market value for the first time, and Intel gained 12%. The S&P 500 Semiconductors industry rose 3.6% for the week and is up 6.8% mtd (chart).
The CPU makers did the heavy lifting for the industry. Muse does more than answer questions. It runs a browser, calls external tools, and keeps working on tasks in the background. That work needs general-purpose processors alongside AI accelerators. A report that AMD plans a 10% price increase in Q4 helped too. AMD is up 34.0% mtd, while Nvidia is up just 1.9% (chart).
Analysts have continued to raise their estimates for companies in the Semiconductors industry index. Their consensus estimates imply collective earnings growth of 113.0% this year and 73.5% in 2027, on revenue growth of 71.6% and 60.7% (chart). The industry's forward profit margin is 51.2%.
Investors still pay less for these earnings prospects than they do for prospective earnings in the rest of the market as a whole. The Semiconductors industry index trades at 16.5 times forward earnings against 19.2 for the S&P 500. The industry now accounts for 53.8% of the Information Technology sector's forward earnings, up from 51.9% in August, against 41.2% of its market cap (chart). We maintain our market weight rating on Information Technology.
