Nasdaq 100 Looking to Halt Bearish Pullback, US GDP in Focus

US stock indices are attempting to halt their declines on Monday after heavy selloffs last week. The US 100, which focuses on the technology sector, dropped over 5% last week, its worst weekly performance since October 2022.  The index is down over 8% from the highs at the end of March.

Resilient US economic data and geopolitical concerns have pushed investors towards safer assets – like the US dollar and gold – leaving equities slightly on the sidelines. Truth be told, the market was primed and ready for a pullback after months of continuous bullish momentum, but some are now concerned that the technical correction could turn into something more.

Fundamentally, data in the US has remained strong. This has two implications for stocks. On the one hand, solid data implies continued strong economic performance in the near future, which is good for future earnings, and therefore positive for stocks. This week is a big one for tech earnings, so investors should keep a close eye on the reports as they can have a big impact on the US 100’s performance. 

On the other hand, stronger economic data pushes back on the Fed’s ability to cut interest rates, which can weigh on the performance of equities. Up until the last quarter of 2023, there was an inverse relationship between data and the performance of stock indices, meaning when data was strong, equities dropped. This relationship changed about six months ago, and equities have been trading solidly despite stronger-than-expected data. So far there is no clear indication that good data is once again bad for equity performance, but we could see this dynamic return if traders become concerned about the impact of higher-for-longer rates on the performance of the US economy.
There doesn’t seem to be any panic in the markets just yet, meaning there are likely plenty of buyers willing to step in at some point, but the short-term bias has started to turn downward. Geopolitical headlines continue to dominate sentiment which means we may continue to see traders causing prices to move lower in the coming days. 

On the data front, US GDP and US PCE are the ones to look out for this week. Growth is expected to have slowed in Q1 in comparison to Q3 and Q4 of last year, but the economy is still expected to have expanded by 2.5% in the first quarter of the year. This is a significant achievement and what makes the US stand out from most other economies worldwide that have been battling with stagnant growth in the last year after monetary tightening was implemented to halt soaring inflation. For traders, a stronger-than-expected GDP reading could reinforce the idea that the Federal Reserve is going to have little room to cut rates this year, which could weigh on equities and prop USD higher. Alternatively, a weaker reading could readjust expectations, potentially giving equities a little boost higher.

From a technical perspective, the pullback in the US 100 has started to become over-extended, with the RSI hovering around the 30 mark. Buyers may be inclined to enter at the current level in an attempt to buy the dip and ride out a bullish recovery, but there is likely to be ample resistance along the way if that were the case. If selling pressure were to resume from here, sellers may be targeting the 38.2% retracement level (16,775) from the March 21st highs, an area that saw significant indecision in the continuation of the rally back in January. 


US 100 daily chart

Past performance is not a reliable indicator of future results.


RISK DISCLAIMER

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80.84% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is no guarantee of future results. Professional clients can lose more than they deposit. All trading involves risk. 

The present marketing communication is not intended for UK audiences.

RESEARCH DISCLAIMER 

THE PRESENT MATERIAL MUST BE REGARDED AS MARKETING COMMUNICATION AND SHOULD NOT BE INTERPRETED AS  INVESTMENT RESEARCH OR INVESTMENT ADVICE.

The content of this communication has been prepared solely for information purposes and should be considered as such. This communication does not constitute research in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. 

The information provided as at the date of this communication is subject to change without prior notice. It does not take into consideration the investors’ individual circumstances or objectives and should not be construed as specific advice on the suitability of any investment decision. Investors should consider this report as merely one factor in making any investment decisions. To the extent permitted by law, neither Capital.com nor any of its employees or affiliates accept any liability whatsoever for any direct or consequential loss arising, directly or indirectly, from any use of this communication or its contents.  Any person acting on the information does so entirely at their own risk. Any information that may be provided in this communication relating to past performance is not a reliable indicator of future results or performance. 

Capital Com SV Investments Limited (“CCSV”) is registered in Cyprus with company registration number HE354252. CCSV is regulated by Cyprus Securities and Exchange Commission (CySEC) under licence number 319/17. . Capital Com Online Investments Ltd is a limited liability company (company number 209236B) registered in the Commonwealth of The Bahamas and authorised to carry on Securities Business by the Securities by the Securities Commission of The Bahamas (“SCB”) with licence number SIA-F245.