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Yesterday we noted that the relatively sizeable declines in major US indices were not as bad as they appeared on the surface.Although substantial declines in major tech stocks pushed the S&P 500 (SPX) and Nasdaq 100 (NDX) down by -1% or more, there were positive divergences that indicated the selling was more isolated than it superficially seemed.Today, thanks to well-received earnings from Taiwan Semiconductor (TSM), we see what happens when tech resumes its leadership.

Like almost every other major company, TSM beat its consensus EPS expectation.(Remember, it is typical for 75-85% of major companies to do that in any given quarter.)But as we’ve asserted numerous times before, an EPS beat is a necessary, but not sufficient, condition for a post-earnings rally. TSM is not trading 7% higher simply because its EPS of 97.5 NTD exceeded the 90.60 consensus by 7%, even if that was a 35% rise from a year ago.It is trading higher because they expressed enthusiasm for their ongoing prospects by announcing that TSM’s capital spending could be as high as $56 billion USD this year, well above analysts’ expectation of $46 billion.

On the surface, it might seem odd to reward a company simply because it’s spending more money than anticipated, but there are two major positive takeaways when a key semiconductor manufacturer makes an announcement of that sort.First, only a thriving company can afford to spend even more billions than it was already planning to.Second, that money will be spent with key suppliers, boosting their prospects as well.Spending upon all things related to artificial intelligence has been a key driver of the bull market, and TSM’s announcement offers an assurance that those dollars will not just continue to flow but will continue to grow.

The prospect of increased AI spending has boosted a range of other semiconductor stocks.The PHLX Semiconductor Index (SOX) is about 3.5% higher at midday, led not only by TSM, but by a wide range of perceived beneficiaries like KLA (KLAC), Applied Materials (AMAT), ASML, ARM Holdings (ARM), and Nvidia (NVDA).The last one is key.If the largest stock in major indices is 3% higher, then that does a lot of heavy lifting.

We noted yesterday that 9 of the top 10 symbols in NDX were trading lower.Today, 8 of 10 are trading higher, with only both classes of Alphabet (GOOGL, GOOG) in the red.At the same time, many of the positive trends that were underlying yesterday’s declines remain in place.The Russell 2000 (RTY) was up 0.7% yesterday; it’s up +1.25% at midday today.Even at its worst, before markets staged a late rally that erased about half of SPX’s and NDX’s losses in the last half hour, advancing stocks were outpacing decliners on both the NYSE and Nasdaq.That remains the case today, though with far greater margins. 

Notably, when tech leads, other speculative darlings can take a breather.Silver and cryptocurrencies are trading lower, probably because speculators are focusing on their favorite tech stocks in lieu of these other asset classes.Oil is sharply lower, by about 5%, after threats to interfere in Iran have faded, yet so are Treasury bond prices as some flight-to-safety trades fade along with the lower tensions.And perhaps thanks to the good vibes from TSM, the three SPX components that reported today – Blackrock (BLK), Goldman Sachs (GS), and Morgan Stanley (MS) – are all trading substantially higher. 

We saw what happened yesterday when investors were in a generally decent mood despite some selling in tech stocks.Today we see what happens when tech leads the way.Tech in general, and AI in particular, remain the key to the equity market’s zeitgeist. Good news from that sector keeps the stock market humming.

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