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Nasdaq Retreats as Fed Knocks Hopes of Rate Cuts

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  • The Federal Reserve is done hiking but is not ready to start cutting.
  • Fed Chair Jerome Powell poured cold water on hopes of March rate cut.
  • FOMC decisions would depend on incoming data.

The Federal Open Market Committee voted unanimously on Wednesday to leave the benchmark interest rate unchanged as widely expected in a target range between 5.25% and 5.5% for a fourth straight month.

Federal Reserve Chair Jerome Powell tempered expectations that the central bank could start cutting interest rates in March, as he seeks further evidence that inflation in the U.S. is continuing to slow towards the 2% target amid robust economic growth and resilient labour market.

In a further sign that the Federal Reserve is not likely to cut interest rates in March, Jerome Powell said that it was not likely the committee will reach a level of confidence by March to cut rates, though continued to stress that future policy decisions would depend on incoming data.

According to the CME FedWatch Tool, the odds of a March rate cut dropped to 30% from 65% prior to the statement. Also, Jerome Powell pushed back against market expectations for five to six interest rate cuts and reinforced that the committee projects 75 basis points of cuts in 2024.

The Fed decided to hold borrowing costs at 23-year highs after its latest policy meeting but changed its tone for the first time and flagged that is no longer considering additional interest rate hikes. The change of Language was perceived to mean that the central bank had finally called the end of the most aggressive tightening cycle.

A graph of stock market

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Source: TradingView

The tech heavy index, which is the most sensitive to interest rates, declined after the Fed meeting as sentiment was dented by the diminishing expectations for a March interest rate cut. Nonetheless, we are of the view that such weakness would be temporary, and we see good prospects of the index trading higher in the year ahead.

The index is up 5% YTD and a whopping 23% since its October 2023 low. This surge has been driven by the biggest tech companies or “Magnificent Seven” with the exception of Tesla, which has been trending down since July 2023 and is the only laggard.

Six of the seven companies comprising the “Magnificent Seven” such as NVIDIA, Amazon, Meta Platforms, Alphabet, Microsoft, and Apple, have reported robust Q4 earnings and are likely to continue to be the positive contributors for the tech index in 2024.

Following the breath taking run by the artificial intelligence (AI)-related stocks over the past year, some cooling-off in the short-term could not be ruled out. Nonetheless, that does not dent the long-term prospects for AI, and we believe the tech darlings would continue to fare well in the years ahead.

Active traders looking for magnified exposure to the technology index may consider Leverage Shares +5x Long US Tech 100 or -3x Short US tech 100 ETPs.

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 Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

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.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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