NAS100 in a Perilous State in the Aftermath of the Fed’s Massive Rate Hike

NAS100 Analysis

The US Federal Reserve delivered its third straight and biggest rate hike in nearly 30 years on Wednesday, with a massive 75 basis move, contrary to recent commentary against such aggressive adjustment. This historic action came as response to the latest inflation data, since headline CPI jumped to 8,6% year-over-year in May, the highest level in four decades.

Fears of stagflation grew as the Fed's front-loaded tightening path creates risk of a slowdown, with the US economy having already contracted in the first quarter. This high inflation/rising rate environment, along with economic slowdown is detrimental for the US stock market.

The SPX500 closed in a bear market on Monday, while NAS100 has been trading in bear market for quite a while now, as the tech sector and growth stocks are more vulnerable to such conditions. It sheds a whopping 30%+ from its November record highs, at the time of writing.

Wall Street reacted positively to Wednesday's announcement since investors had come to expect the Fed's mammoth hike, while Mr Powell talked of an "unusually large" move and does not expect a bigger rate adjustment at the next meeting in July. ^[1]

So it looks like the Fed's hawkishness may have well peaked and this could potentially help put a floor under the stock market, but it is definitely too early to talk for that. Policy makers reasserted their resolve to fight inflation and based on the upgraded median projection, they expect interest rates at 3.4%, from current 1.5-1.75%.

As reality set-in after the initial upbeat reaction, NAS100 slumped to the lowest in nearly two years on Thursday and is now in danger of breaching 10,673, although further losses that would test 10,088 will need fresh impetus.

On the other hand, it finds reprieve today and an effort for new weekly highs (11,758) would not surprise us, but we struggle to see at this stage what could lead to a larger recovery that would threaten the EMA200 (at around 12,400).

From today's economic calendar, we expect US Industrial Production, while Mr Powell is on tap before that. US Stock markets will be closed on Monday, so it will be interested to see in what mood will NA traders return form their long weekend.