NAS100 Makes Cautious Start to a Week Dominated by Big Tech Earnings & the Fed

The Fed Decides

The US Federal Reserve embarked upon an aggressive monetary tightening path at the beginning of the second quarter, having already delivered 150 basis points worth of rate hikes, in order to combat surging inflation.

In the last decision in June, it had increased rates by a historic 0.75%, reacting to an unexpected jump in Inflation just a few days before that. Chair Powell had also pointed to 50-75 basis points move for this week's meeting. ^[1]

The latest inflation data from two weeks ago, showed that headline CPI accelerated 9.1% in June year-over-year to the highest level since 1981, causing markets to price in an outsized full percentage points hike.

However, Fed officials kept their cool this time around, with hawks Mr Bullard and Mr Waller sticking to the 0.75% plan ^[2], ^[3] that reined markets in. At the time of writing, CME's FedWatch Tool projects an 0.75% move with 75.1% probability. ^[4]

Big Tech in Focus

The tech sector and growth stocks are more vulnerable to the current high interest rate environment, with NAS100 trading firmly in bear territory, since it loses more than 20% from its November record highs.

FXCM's FAANG stock basket, which includes Meta Platforms (Facebook-parent), Apple, Amazon, Netflix and Alphabet (Google), erased nearly 30% in the second quarter, as the Fed had been tightening its policy.

Against this backdrop, Netflix reported better than feared results last week and during the current one, attention turns to the rest of the FAANGs, which announce their quarterly results, along with more tech heavyweights such as Microsoft.

NAS100 Analysis

The second quarter slump of NAS100 culminated in June's nearly two-year lows, but the index is off to strong start to July, as expectations around the Fed's next move cooled down. However, it is too early to talk about a credible bottom, especially as the Fed's decision looms, which can define the trajectory of the stock market.

NAS100 rejected the 38.2% Fibonacci of the March High/July Low slump on Friday and started the current week on the back foot. This creates risk for a return below the 12,070-00 region (EMA200) that would put the ascending trendline from the aforementioned lows into question (12690-50). It could also open the door to new lows (11,035-10,958), but it is early to talk about such an outcome.

On the other hand, as long the index holds above EMA200, immediate bias is on the upside. As such, it has the ability to push for higher highs towards 12,891-12,943, but will likely need fresh impetus for that and 13,560 is distant at this stage.