Market Indexes Play Favorites: Tech Wins, Industrials Sulk on Monday

The three major U.S. stock indexes moved in different directions Monday morning as investors weighed competing forces. There's renewed optimism in artificial intelligence infrastructure against persistent concerns about Middle East oil disruptions. Meanwhile, Wall Street faces a heavy week of corporate earnings.

By 11:34 a.m. ET, the Nasdaq Composite (NASDAQINDEX: ^IXIC) index had climbed 0.5%, the S&P 500 (SNPINDEX: ^GSPC) was up 0.3%, and the Dow Jones Industrial Average (DJINDICES: ^DJI) moved 0.3% lower. All three indexes opened modestly higher, and the Nasdaq briefly flirted with a 1% pop around 9:50 a.m. Then the early enthusiasm faded, and the Dow crossed into negative territory before 10:00 a.m.

^IXIC data by YCharts

The AI boom roars back to life

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) emerged as the session's primary catalyst. The Google parent jumped 3% after The Information reported that Google is cooking up a new chip called "Frozen v2." The hardware will reportedly run Google's Gemini AI models six to ten times more efficiently than current silicon. Alphabet added 61 points to the Dow and topped the leaderboard across all three key indexes.

The semiconductor sector rallied broadly on the news. Micron Technology (NASDAQ: MU) surged 4.2%, the iShares Semiconductor ETF (NASDAQ: SOXX) gained 2.1%, Nvidia (NASDAQ: NVDA) added 1.5%, and Broadcom (NASDAQ: AVGO) rose 2.8%. Some of them have a hand in Alphabet's chip designs, while others are direct rivals. Either way, investors applauded fresh signs of innovation in the chip sector.

After today's gains, SOXX has still cratered 19% from its June high. Monday felt less like a victory lap and more like a pressure release valve finally popping. Mind you, longtime investors are still doing fine. Micron's stock is up 681% in 52 weeks. SOXX more than doubled with a 117% gain.

Image source: Getty Images.

Not everyone got an invitation to Monday's party. Apple (NASDAQ: AAPL) dropped 2.4%, which is awkward timing given all the positive buzz around its AI rollout in China. Sometimes stocks just need to catch their breath after a big run; Apple gained 5% last week.

Meanwhile, Caterpillar (NYSE: CAT) fell 1.2%. Because the Dow is price-weighted and Caterpillar's shares trade near $870, that decline alone erased about 62 points from the index, essentially erasing Alphabet's positive contribution. Caterpillar's stock accounts for roughly 10% of the Dow's entire value nowadays. Maybe it's time for a stock split.

Overseas, the U.S. military conducted its ninth consecutive night of strikes against Iran. Brent crude oil briefly punched above $90 per barrel before retreating on hints that Tehran might be open to negotiations. Gasoline prices have climbed back to $4 per gallon nationally. Oil refiners Marathon Petroleum (NYSE: MPC) and Valero (NYSE: VLO) are two of the five largest gainers on the S&P 500 over the last month.

Buckle up for earnings season

Monday's session sets the stage for one of the busiest earnings weeks of the quarter. Alphabet and Tesla (NASDAQ: TSLA) report on Wednesday, followed by Intel (NASDAQ: INTC) later in the week. More than 300 companies are releasing results before the weekend. Investors are hungry for clarity on AI spending. For better or worse, they're going to get a buffet of data points.

None of this changes the long game. Sector rotation and volatility are part of the deal. The question isn't whether AI stocks will bounce; it's whether the companies behind them can prove the spending is worth it. This week's earnings should offer some answers.

Anders Bylund has positions in Alphabet, Intel, Micron Technology, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Broadcom, Caterpillar, Intel, Micron Technology, Nvidia, Tesla, and iShares Trust-iShares Semiconductor ETF. The Motley Fool has a disclosure policy.