What’s behind Nasdaq’s first monthly loss in 6 months? – Stock Markets
August 30, 2023 2:27 pm
As the Q2 earnings season draws to an end and market participants are digesting the Fed’s updated view on the interest rate trajectory and inflation outlook, major US indices are heading for their first monthly loss in six months. Nvidia’s upbeat earnings solidified the view that Artificial Intelligence (AI) is currently the biggest growth lever in the economy, but that did not manage to prevent the Nasdaq from forming a red monthly candlestick. Is the year-to-date stock market rally starting to fizzle out?
Earnings fail to impress
The last few weeks were eventful for US stock markets as the biggest companies in the world revealed their second quarter financials, which were highly anticipated by investors to assess the health of the corporate world and whether consumer spending is holding up. Even though we got another quarter of negative earnings growth, results topped initial expectations by a substantial margin. This phenomenon of clearing a low bar had boosted equity prices in previous earnings seasons, but this time it failed to do so.
Nvidia’s blowout earnings garnered a lot of attention, with the leading chipmaker posting an impressive 101% revenue growth compared to the same quarter last year, while earnings per share (EPS) increased by a massive 429% on an annual basis. Besides the stellar financial performance, these figures proved that demand for advanced chips from tech giants involved in the broader AI spectrum has risen exponentially, confirming that AI could be the name of the game for the upcoming years. Yet, this was not enough to boost the tech-heavy Nasdaq 100, which quickly erased its initial pop.
Bad news is good news for stocks
AI coupled with excess liquidity might have been the main drivers for this year’s equity rally, but the Fed seems to be taking centre stage lately. In a nutshell, investors appear to be mostly focusing on the interest rate path, neglecting any factors surrounding the economic growth outlook.
As the US economy has been demonstrating remarkable resiliency in recent months, rate cut expectations have been repeatedly pushed further into the future. This resulted in US Treasury yields spiking to fresh cycle highs, which in turn applied severe downside pressure on stocks.
With yields at such high levels, investors are likely to turn towards long-term bonds, which can provide a considerable return until the Fed finally pivots. For that scenario to materialise, though,it would likely require somethingbreaking in the economy or a streak of disappointing US data releases.
Technical outlook
From a technical perspective, the Nasdaq 100 had experienced a moderate pullback from its 2023 highs, but the price quickly bounced back and edged back higher. Will the index revisit its peaks?
If the price extends its recovery, the 2023 peak of 15,932 could be the first barrier for bulls to clear. A break above that zone could open the door for the all-time high of 16,764.
On the flipside, should the price reverse lower, the recent support of 14,557 could act as the first line of defense ahead of the 13,720 hurdle.
As the Q2 earnings season draws to an end and market participants are digesting the Fed’s updated view on the interest rate trajectory and inflation outlook, major US indices are heading for their first monthly loss in six months. Nvidia’s upbeat earnings solidified the view that Artificial Intelligence (AI) is currently the biggest growth lever in the economy, but that did not manage to prevent the Nasdaq from forming a red monthly candlestick. Is the year-to-date stock market rally starting to fizzle out?
Earnings fail to impress
The last few weeks were eventful for US stock markets as the biggest companies in the world revealed their second quarter financials, which were highly anticipated by investors to assess the health of the corporate world and whether consumer spending is holding up. Even though we got another quarter of negative earnings growth, results topped initial expectations by a substantial margin. This phenomenon of clearing a low bar had boosted equity prices in previous earnings seasons, but this time it failed to do so.
Nvidia’s blowout earnings garnered a lot of attention, with the leading chipmaker posting an impressive 101% revenue growth compared to the same quarter last year, while earnings per share (EPS) increased by a massive 429% on an annual basis. Besides the stellar financial performance, these figures proved that demand for advanced chips from tech giants involved in the broader AI spectrum has risen exponentially, confirming that AI could be the name of the game for the upcoming years. Yet, this was not enough to boost the tech-heavy Nasdaq 100, which quickly erased its initial pop.
Bad news is good news for stocks
AI coupled with excess liquidity might have been the main drivers for this year’s equity rally, but the Fed seems to be taking centre stage lately. In a nutshell, investors appear to be mostly focusing on the interest rate path, neglecting any factors surrounding the economic growth outlook.
As the US economy has been demonstrating remarkable resiliency in recent months, rate cut expectations have been repeatedly pushed further into the future. This resulted in US Treasury yields spiking to fresh cycle highs, which in turn applied severe downside pressure on stocks.
With yields at such high levels, investors are likely to turn towards long-term bonds, which can provide a considerable return until the Fed finally pivots. For that scenario to materialise, though, it would likely require something breaking in the economy or a streak of disappointing US data releases.
Technical outlook
From a technical perspective, the Nasdaq 100 had experienced a moderate pullback from its 2023 highs, but the price quickly bounced back and edged back higher. Will the index revisit its peaks?
If the price extends its recovery, the 2023 peak of 15,932 could be the first barrier for bulls to clear. A break above that zone could open the door for the all-time high of 16,764.
On the flipside, should the price reverse lower, the recent support of 14,557 could act as the first line of defense ahead of the 13,720 hurdle.
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