NAS100 in Precarious State in the Aftermath of the Fed as US Mid-Terms Loom

  • NAS100
    (${instrument.percentChange}%)

Adverse Monetary Policy

The US Fed pointed towards a slower path of rate hikes last week, as it raised it by another outsized 75 basis points, to 3.75-4.00%, which is the highest since the start of 2008. However, Chair Powell defended the aggressive moves and ruled out any pause, while shifting focus from the pace to how far rates will increase. [1]

More to it, he noted that "we may ultimately move to higher levels than we thought at the time of the September meeting", embracing higher market expectation for the terminal rate. Back then, Fed officials had projected the median rate to peak at 4.6% in 2023, while CME's FedWatch Tool shows expectations of at least 5.25% at the time of writing. [2]

Policy makers have delivered a massive tightening cycle since the March lift-off, which has been detrimental to Wall Street and to NAS100 especially, since the tech sector and growth stocks are more vulnerable to the current high rates-high inflation environment.

China Risk Factors

The tech heavy index managed to rebound last Friday and extends its gains this week, despite risk factors from China. Exports from the world's second biggest economy dropped 0.3% in USD terms in October, the first year-over-year decline since May 2020 and the height of the pandemic.

Covid-19 cases are elevated recently and along with China's strict zero-Covid policy economic activity is being impacted. Ahead of the important holiday season, tech giant Apple issued a warning for lower shipments and longer waiting times for its iPhone 14 Pro and iPhone 14 Pro Max, since production in its Zhengzhou factory is impacted from Covid restrictions. [3]

Over the last few days there has been some optimism in investors that China will loosen its lockdown policies, but authorities are committed to the strict containment strategy according to Xinhua, citing officials from the national administration of disease prevention and control. [4]

US CPI & Mid-Terms

Markets will focus this week on the October inflation figures from the US, due on the Thursday, in the form of the Consumer Price Index. Despite the Fed's tightening efforts, inflation remains stubbornly high. Headline CPI had eased marginally to 8.2% y/y in September, but Core CPI had risen 6.6% and the highest since 1982.

Meanwhile the mid-term elections in the United States are held today, with Democrats facing an uphill battle. They currently hold both chambers, but they look set to loose control of the House and potentially concede the Senate as well. According to FiveThirtyEight's latest poll, Republicans are "favored" to take control of the House and "slightly favored" to win the Senate. [5]

It is hard to make an assessment on the impact of the outcome in the stock market (if any), but a Democratic surprise could weigh on the tech sectors, as Democrats in the Congress have been trying to rein in Big Tech, such as Alphabet, Facebook and others.

NAS100 Analysis

The index remains upbeat today after its strong showing over the previous two days, as markets brushed aside recent risk factors, but the upside looks unhospitable. It has the ability push again for the EMA200 and the descending trendline from the summer highs (11,320-11,400). Sustained recovery though, beyond the critical 11,580-11,693, will require a strong catalyst. This is the lower border of the daily Ichimoku Cloud and the 38.2% Fibonacci of the 2021 High/2022 Low slump.

The current fundamental and technical environment is still unfavorable for NAS100, which remains deeply in bear territory. In mid-October, it had fallen to the lowest levels since July 2022 (10,437), with the ensuing rebound contained by the aforementioned 38.2% Fibonacci. This creates increased risk for new lows that would bring 10,089-10,000 in the spotlight.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 08 Nov 2022 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20221102.htm

2

Retrieved 08 Nov 2022 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

3

Retrieved 08 Nov 2022 https://www.apple.com/newsroom/2022/11/update-on-supply-of-iphone-14-pro-and-iphone-14-pro-max/

4

Retrieved 08 Nov 2022 https://english.news.cn/20221105/53481ddfa4434065bdeac2407ca2ae73/c.html

5

Retrieved 29 Jan 2023 https://projects.fivethirtyeight.com/2022-election-forecast/

Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.

Risk Warning: Our service includes products that are traded on margin and carry a risk of losses in excess of your deposited funds. The products may not be suitable for all investors. Please ensure that you fully understand the risks involved.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}