Wall Street rises as chip stocks rebound ahead of Big Tech earnings

Wall Street's major indexes advanced on Monday, led by a rebound in semiconductor stocks, as investors looked ahead to a crucial wave of earnings from major technology companies that have been the primary driver of the AI-fueled rally in US equities.

The pace of second-quarter earnings reports is set to accelerate later this week, with results due from Alphabet (Google), Tesla, Intel, and IBM.

Investors are also closely watching earnings from Intel and Texas Instruments for signs that the semiconductor industry can regain momentum following its recent sharp correction.

Heavy spending on AI infrastructure by hyperscale cloud providers has been one of the biggest forces behind this year's market gains, boosting semiconductor stocks and other companies benefiting from the rapid expansion of artificial intelligence investments, helping Wall Street reach record highs.

However, last week's selloff raised concerns that the market's previous gains may have become overstretched.

Semiconductor stocks rebound after entering bear market

The Philadelphia Semiconductor Index (SOX) closed Friday more than 20% below its record high reached in late June, officially confirming its entry into bear market territory. The index, however, rebounded 2.5% during Monday's session.

"The margin for error in the market has become much smaller at this stage, and any event or earnings report could easily push stocks lower," said Jack Haire, Chief Investment Officer at GuideStone Funds.

"As we move into the second half of the year, investor expectations are significantly higher than they were before," he added.

According to LSEG data, analysts now expect S&P 500 companies to deliver 26% year-on-year earnings growth in the second quarter, up from an earlier forecast of 23.7%.

As of 9:50 a.m. ET, the Dow Jones Industrial Average was up 78.39 points, or 0.15%, at 52,224.81.

The S&P 500 gained 44.81 points, or 0.60%, to 7,502.50, while the Nasdaq Composite rose 234.45 points, or 0.92%, to 25,754.69.

Technology stocks lead gains

Micron Technology led gains among semiconductor stocks, climbing 5.1%, while SanDisk advanced 5.4%.

Alphabet rose 3.4% after a report said the Google parent is developing new chips to power its own artificial intelligence models.

The information technology and communication services sectors led gains among the S&P 500's major sectors.

The rebound came despite last week's decline in US equities, even after softer-than-expected inflation data eased concerns about a potential Federal Reserve rate hike in July and major US banks kicked off the earnings season with strong results.

According to CME Group's FedWatch Tool, markets are currently pricing in roughly a 15% probability of a 25-basis-point rate hike at the Federal Reserve's July meeting.

Geopolitical risks remain in focus

Investors also continued to monitor developments in the conflict involving the United States, Israel, and Iran following the latest escalation in the nearly five-month-long war, which has renewed concerns about inflationary pressures.

Meanwhile, the Iran-aligned Houthi movement in Yemen announced a maritime blockade on Saudi Arabia, opening a new front in the Middle East conflict and increasing risks to global energy supplies and trade routes.

Among individual stocks, Domino's Pizza gained 3.6% after the company reported quarterly revenue that narrowly exceeded Wall Street expectations.

In the broader market, advancing stocks outnumbered decliners by 1.14-to-1 on the New York Stock Exchange and by 1.11-to-1 on the Nasdaq.

The S&P 500 recorded eight new 52-week highs against one new low, while the Nasdaq Composite posted 31 new highs and 55 new lows.