Major U.S. stock indexes declined yesterday, with the NASDAQ100 starting today’s Thursday trading at $17,583.50, relinquishing earlier gains as investors grappled with a complex mix of falling crude oil prices, cautious remarks from the Federal Reserve, and geopolitical tensions. Amid mixed quarterly earnings and uncertain economic outlooks, the market displayed resilience but with unmistakable caution.
Currently, the Dow Jones index is trading at 37,518.01, down 154.96 or -0.41%. The S&P 500 index reached 5,018.60, down 31.81 or -0.65%, while the NASDAQ100 traded at 15,718.36, down 146.90 or -0.93%.
In my view, Federal Reserve Chairman Jerome Powell’s comments on Tuesday, emphasizing the prolonged battle against inflation, shifted investors’ expectations from a potential rate cut in September to December.
Further intensifying the hawkish tone, Federal Reserve Vice Chair Philip Jefferson suggested that if inflation persists, current tight monetary policies may continue.
These developments led to a reevaluation of Federal Reserve fund futures, now indicating only a 40-basis point cut by year-end, significantly less than expected.
Early earnings reports also reflected mixed sentiments for the market. While United Airlines shares rose by 12% following revenue increases, ASML witnessed a 6% decline after failing to meet demand expectations. With 43 companies reporting on the S&P 500 index, those failing to meet earnings and revenue estimates experienced an average stock drop exceeding 10% the following day, significantly higher than the five-year average of 3.1%.
Increasing geopolitical tensions in the Middle East and ongoing concerns about interest rates have weakened the upward momentum of stocks early in the year. Inflation may not reach the Federal Reserve’s 2% target soon, but economic growth will persist.
Market direction increasingly hinges on upcoming earnings seasons and ongoing economic indicators. With cautious expectations regarding rate cuts and inflation control, short-term market sentiments tend toward decline. Investors will need to closely monitor upcoming earnings reports and Federal Reserve signals to gauge potential market movements in the short and medium term, which could impact market sentiments.
While U.S. and global stock indexes have been far from their highs, they remain largely unfavored by investors. Recent weeks have seen investors avoiding risks after the markets’ stellar performance in the past five months, up to April.
From my perspective, investors have become significantly concerned about rising yields on benchmark government bonds, with diminishing chances of a Federal Reserve rate cut in June. After starting the year with pricing in nearly six rate cuts for 2024, traders are now uncertain they will get just two 50 basis point cuts by December.
Moreover, ballooning government debt and rising costs of financing U.S. debt have become major concerns in the markets. The International Monetary Fund criticized U.S. policymakers for unsustainable fiscal policies that have fueled the country’s recent economic success. Simultaneously, the IMF warned against excessive spending, which threatens global financial instability. Such actions could raise global financing costs, endangering long-term financial health worldwide.
It’s worth noting that all these overarching factors, coupled with profit-taking by investors, have led to key stock indexes, notably the NASDAQ100, breaking some critical technical support levels, supporting the current downward corrective movement in the short term.
Technical Analysis of the Nasdaq100 (US100) Prices:
The NASDAQ 100 index is attempting to break out of its recent sideways movement. It breached below the 17,800 level, the lowest level since March, and continues to move below this level directly. Here, the corrective decline may continue, supported by the Relative Strength Index (RSI) signaling below 50, potentially targeting lower levels down to the 100 SMA at 17,400. A break below this could target 17,160, the lowest level in February.
Any recovery or return to the upside would need to stabilize above the resistance between 17,800 and 18,000 at the 50 SMA to target the peak at 18,466 and potentially new all-time highs.
Nasdaq100 (US100) – Prices Chart –-XS.com MT4.
On the daily chart, the NASDAQ 100 index breached the key support zone between 17,950 to 17,860, resulting in a short-term bearish reversal. Consequently, the index continued its decline to below the mid-March low at 17,760 points. If the correction deepens, it could potentially reach $16,635.47, a very strong rebound level.
On the downside, there are no clear support levels in the short term to monitor. Perhaps 17,500 could serve as the initial support level, which must be firmly breached for further downside. Below this level lies a long-term support zone between 16,765 to 16,970, representing its recent highs, including in 2023. Short-term price action indicates a technical bias towards further downside.
Support Levels: 17,465.90 – 17,234.40 – 16,635.47
Resistance Levels: 17,593.98 – 17,839.50 – 18,117.50
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