Will Microsoft and Artificial Intelligence Save the Market? – RealMoney

The market experienced a significant shift on Tuesday. There were several weak reports like that from UPS (UPS) , and a number of strong reports like McDonald's (MCD) and General Motors (GM) as well, but the market gapped lower at the open and trended down the rest of the day.

The selling was very broad and persistent, and the dip buyers that have been so active lately stood on the sidelines and watched.

It looked quite gloomy at the close, but Microsoft (MSFT) posted an extremely strong report, and Alphabet (GOOGL) announced a substantial buyback of shares. This action is producing a substantial bounce in the Nasdaq 100 (QQQ) , which was trading up about 1% after dropping 1.9% on Tuesday.

There are still hundreds of earnings reports to come, including heavyweights like Meta (META) , Amazon (AMZN) , and Apple (AAPL) , but will they help to shore up the broad damage that is occurring in other areas of the market like Semiconductors (SMH) and Financials (XLF) ?

The problem is that the stellar report from Microsoft, and to a lesser degree Google, is company specific. Both companies are benefiting from a boom in artificial intelligence (AI). The growth there is even faster than what occurred during the internet bubble in the late 1990s, and Microsoft is the leader.

AI is going to benefit many companies in various ways, but it is not going to stop the economic cycle. The shift in market action on Tuesday was largely due to concerns about banks because of the collapse of First Republic Bank (FRC) and growing concern about economic growth. A poor report from UPS and broad weakness in trucking indicated that the economy is slowing very quickly. A poor Philly Fed report and other economic news is also a sign that things are slowing.

Another indication that a major shift is occurring is that bonds rallied sharply as equities fell and money flowed into safe plays like soft drinks and pharmaceuticals. There was a major rotation out of the stocks that are most likely to suffer from a recession, such as small-caps (IWM) and chips, and into the safety of bonds and drugs.

We have a slew of earnings ready to hit, and we will see how far Microsoft can lead the market, but the danger lies in thousands of smaller stocks that will be offset to some extent by Google and Microsoft.

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Will Microsoft and Artificial Intelligence Save the Market? - RealMoney