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.
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.
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.
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 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 joined Leverage Shares in 2018 as part of the company’s premier 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 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 LS 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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