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Education Series: Single-Stock ETPs

NASDAQ 100 Quite Ahead of Midterms and CPI

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

The NASDAQ 100 index was hard hit last Wednesday not so much in reaction to the fourth consecutive 75-basis-point interest rate hike, which was fully discounted, but the Fed’s Chair Jerome Powell indication that its terminal rate would be higher than previously expected due to persistently high inflation.

While the central bank signalled that it would slow the pace of tightening at some point, it also stressed that it is too premature to talk about a “pause” and that the ultimate level of interest rates will be higher than expected due to stubornly high inflation. The market is now anticipating the terminal rate to peak around 5.15% by the middle of next year with the aggressive roadmap likely to reinforce recessionary risks and supress equities, even if the Fed moves to a slower pace. Following the FOMC press conference the tech-heavy benchmark traded deeply in the red on worries that the Fed would stick to its hawkish stance until it sees strong evidence of price pressures easing and the labor market cooling.

Source: Tradingview

Last Friday’s better than expected Nonfarm Payroll report showed that the U.S. labor market remains tight despite the Federal Reserve’s bid to loosen it. The U.S. added 261K jobs in October, down from an upwardly revised level of 315K in September and above market expectations of 200K. The unemployment rate ticked higher to 3.7%, up from 3.5% last month, while expectations were for a rise of 3.6%. The latest U.S. employment report confirmed that policymakers have more work to do to cool the economy in their quest to tame inflation via demand destruction.

The NASDAQ 100 is likely trade higher on Monday, ahead of the potentially significant U.S. midterm elections on Tuesday and the release of inflation data on Thursday, which is the most important catalyst this week.

The midterm elections are taking place on Tuesday, with the polls suggesting that the Republican party could take control of the House of Representatives and possibly the Senate for the second half of President Joe Biden’s term. Republicans have picked up momentum in recent polls and a split government, which historically has been good for U.S. equity markets.

The U.S. Bureau of Labor Statistics is scheduled to release October’s CPI data on Thursday. Headline CPI is forecast to have risen 0.7% on a seasonally adjusted basis, with the annual rate seen easing to 8.0% from 8.2% in September. The core CPI is expected to clock in at 0.4% MoM and 6.5% YoY.

Source: Bureau of Labor Statistics

For the mood to improve and for buyers to return, the CPI is needed to surprise to the downside in a meaningful way. In-line or above estimates results should keep the market mood depressed, paving the way for potentially more losses for the Nasdaq 100. In this sense, the very short-term outlook for the index hinges on the inflation report.

Source: Tradingview

From its November 2021 high the interest rate sensitive NASDAQ 100 index lost more than 35% with price structure and momentum conditions remaining poor at this stage. The price action and the RSI indicator are both below their respective down trend lines, showing that the bear market is still firmly in play. Until we see a price reversal or improvement in momentum, we favour further downside in the coming months.

Active traders looking to gain exposure to the index may use our 3x Long US Tech 100 ETP or our 3x Short US Tech 100 ETP to take advantage of expected short-term rebounds and declines.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

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