US Inflation Dealt Another Blow to the Technology Sector
NAS100 Analysis
The technology sector and growth stocks are sensitive to the current high interest rates environment, which has led to very poor year, as the US Fed has been aggressively tightening its policy.
After July's second straight historic 0.75% rate increase, the central bank abandoned forward guidance and pivoted to a data-dependent approach, while Chair Powell had hinted to a potentially slower pace in the future but at the same time keeping the door open to more outsized hikes. [1]
Markets got it to their head that this the Fed would soon change tack and become less aggressive, which allowed the NAS100 to stage a notable recovery in July. This proved short-lived however, as policy makers refocused the public discourse on their resolve to bring inflation down and maintain their hawkish stance.
Yesterday's surge in core CPI shattered recent optimism for a peak in inflation and markets now see possibility for an even bigger move on rates by the central bank during the upcoming meeting next week.
This led to sell-off in the stock market, with tech-heavy NAS100 posting its worst day since March 2020 and the height of the COVID-19 outbreak, while FXCM's FAANG Stock Basket shed nearly 7%.
NAS100 closed the day below the daily Ichimoku Cloud, still trading firmly in bear territory, since it loses more than 20% from the November 2021 record high – which is generally seen as the threshold for such designation. However, it managed to defend the recent lows in the 12,000-11,915 region and finds reprieve today.
This may give it the chance for a rebound towards the EMA200 and the descending trendline from last month's high (12,600-12,790), but a catalyst would likely be needed for such a move and we are cautious around the ascending prospects.
Bears are in control and we see risk of renewed pressure to 11,693, although it is probably be early for weakness below 11,035.
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
| Retrieved 07 Jun 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20220727.htm |
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.