Wall Street futures rebound after tech selloff, but key tests loom

US stock futures are pointing higher at the start of the new trading week, offering a measure of relief following last week's sharp declines. Technology shares bore the brunt of the selloff, with the Nasdaq ending its four-week winning run and closing the week more than 4% lower. The S&P 500 also slipped by roughly 2%, marking its weakest weekly performance since June.

Today, however, the mood has brightened. Nasdaq futures are advancing 1.4%, while S&P 500 futures are up 0.8% so far. What has shifted over the weekend?

One factor is the bond market, which appears to be giving equities more room to breathe. The yield on the 10-year Treasury has edged down to 5.06%, supported by softer oil prices amid expectations that sanctions on Russia may be eased. That is alleviating some of the pressure on high-valued tech stocks, which are especially responsive to changes in borrowing costs.

That said, this should not be interpreted as an all-clear signal just yet.

Last week's selloff on Wall Street was clearly not driven solely by the bond market. Despite inflation data coming in hotter than expected, Treasury yields declined, yet tech stocks still struggled throughout the week. Are investors beginning to recognise the difficulties in market breadth and momentum? Or are they increasingly questioning the massive investments flowing into AI infrastructure, particularly with financing costs remaining high?

Either way, the latter is something to keep an eye on as trading gets underway this week.

Netflix, Meta, and Tesla are all scheduled to report earnings in the days ahead. In particular, Meta's results stand out as critical, with investors expected to closely examine the company's AI spending plans and profit margins.

Additionally, earnings from IBM and Lam Research are due, with the latter potentially providing insight into whether underlying demand for chips remains strong.

Beyond earnings, Friday's flash PMI readings from the US and the trajectory of Treasury yields will also merit attention. For now, lower yields may give tech stocks a reason to rebound. But in the coming days, this week's earnings will need to offer investors a compelling reason to continue buying.