NAS100 in Correction after Jobs Miss & Mixed Tech Earnings

NAS100 Analysis

The euphoria that fueled Wall Steet's rally since last year has faded, giving way to concerns over the sustainability to of the boom and a rotation out of Big Tech. The Magnificent Seven results largely failed to alleviate those fears, as Google once again failed to show return of investment ^[1], while markets did not like Microsoft's cloud numbers ^[2]. Although Meta posted strong results benefiting from its AI advances, it could not lift the broader morale. Amazon picked up the baton and disapointed markets with its guidance ^[3], while Apple returned to growth, but iPhone sales dropped and China woes persisted.

In the meantime, the Fed had opened the door to a pivot ^[4], but that offered only brief respite and NAS100 went into Friday's critical employment report form a weak position. The results were below expectations, with the creation of just 114K jobs in July, the worst print since the pandemic year. Unemployment jumped to 4.3% y/y and the highest in nearly three years. The results exacerbated worries that the Fed is behind the curve, stoked recession fears and bolstered calls for aggressive rate cuts. Markets now price in 125 basis points of cuts in the three remainder meetings of the year (from 75 bps previously), according to CME's FedWatch Tool.^[5]

Crucially, the increase in unemployment triggered the Sahm Rule ^[6], which signals a recession and has a very good track record over the past several decades. Factory activity is subdued, pandemic excess savings which supported consumption are depleted and credit card and auto loan delinquencies are on the rise.

NAS100 slumped further after Friday's jobs report, closing the week in correction territory, losing more than 10% from its record peak. Today it extends its drop, creating risk of new 2024 lows and a bear market (20% drop for the all-time highs).

However, other indicators (like GDP) point to robust economy and resilient consumers, with unemployment is still at very good levels. Furthermore, market pricing around Fed cuts is exaggerated. Form a purely technical perspective, the RSI points to oversold conditions that can help NAS100 return above the 200Days EMA (blue line). The upside is unfriendly though and a significant change in sentiment will be needed for sustained rebound.