Cloud computing exchange-traded funds posted strong gains on Friday, buoyed by a softer-than-anticipated U.S. inflation reading that revived investor hopes for future interest rate cuts. The First Trust Cloud Computing ETF (SKYY) climbed 2.5% to close at $114.26, leading a sector-wide advance.
Inflation Data Fuels Rally
The rally was catalyzed by the latest Consumer Price Index report, which showed a 2.4% annual increase, slightly below economist forecasts. This triggered a drop in Treasury yields, a positive development for growth-oriented technology and software stocks whose valuations are heavily tied to future earnings potential. The Global X Cloud Computing ETF (CLOU) rose 2.56% to $19.62, while the WisdomTree Cloud Computing Fund (WCLD) gained approximately 2.6%.
Despite the sector's strength, broader market sentiment remained cautious. The Nasdaq Composite slipped into negative territory, with some investors wary of potential disruption from rapid advances in artificial intelligence across the software landscape.
Holiday Break and Key Earnings Ahead
U.S. financial markets will be closed on Monday for the Washington's Birthday holiday, creating a condensed trading week. The focus will quickly shift to cybersecurity leader Palo Alto Networks (PANW), which is scheduled to release its fiscal second-quarter earnings after the market closes on Tuesday, February 17.
Options market activity suggests traders are anticipating significant price movement around the earnings report, with implied volatility pointing to a potential swing of about 8% in either direction. Following Palo Alto's results, investor attention will turn to other major enterprise software firms, including Salesforce and Snowflake, which report later in the month.
Analysts note that while the inflation-driven rally provided relief, the sector's footing remains tentative. Should bond yields resume their climb or if upcoming corporate results spark fresh concerns about AI-driven competitive pressures, last week's gains could prove short-lived.
