NAS100 Resilient to Powell’s Hawkish Message, Helped by the AI Boom

Spotlight on Key Drivers

The tech-heavy index has rallied this year on the back of the Artificial intelligence (AI) rush, spearheaded by Nvidia and the slower pace of monetary tightening by the Fed and market optimism for its concussion. Both themes were in the spotlight this past week, creating market volatility. This could persist during the current one, as PCE inflation update is due on Thursday and and the NFPs follow a day later. These data points can affect the Fed's thinking and determine the trajecotry of NAS100.

Nvidia

The chip-designer is at the forefront of the AI revolution, since its GPUs are powering the development and deployment of applications such as ChatGPT and its stock (NVDA.us) reaps the benefits, having more than tripled in the first seven months.

Last Wednesday, Nvidia reported record revenues of $13.507 billion in Q2 FY24, driven by strong demand for its AI infrastructure and offered upbeat guidance for the current. It also dispelled output concerns, with CFO Collette Kress expecting "supply to increase each quarter through next year", according to her remarks in the earnings call. ^[1]

NVDA.us opened with record highs on Thursday after the blockbuster quarterly report, but the optimism faded. It ended the day basically flat and dropped on Friday, as markets turned their attention to Mr Powell's speech.

Federal Reserve

The US central bank has adopted a non-committal stance around its next steps, as it assess the impact of its massive amount of tightening. Inflation has been decelerating and given the lagging nature of monetary policy, it may have already done enough. On the other hand, inflation is still high, the economy robust and the labor market hot, despite signs of cooling.

Chair Powell did not offer much new on Friday at the Jackson Hole Symposium, but delivered a mostly hawkish message. He once again touted data-dependence and stressed that officials will proceed "carefully", but warned that they "are prepared to raise rates further if appropriate". ^[2]

Markets have been adjusting to the higher-for-longer narrative over the past week's and Mr Powell's remarks underscored the hawkish repricing. CME's FedWatch Tool now assigns the highest probability (47.8%) to another hike in November, for the terminal rate to be reached. ^[3]

NAS100 Analysis

The tech-heavy index had a volatile week as markets assessed the updates around the main drivers of this year's performance. Although initial reaction to Nvidia was positive, there was no follow through, reflecting concerns as to whether the AI-rally has more room to run. Although Investors reacted negatively to Chair Powell's hawkish messaging on Friday, NAS100 closed the day and the week with profits, stopping the three-week slide.

The shift towards Artificial Intelligence is likely to prove transformational for the tech sector and Nvidia's results and commentary, showed that there is room for growth, which can continue to lead equity markets. Furthermore, NAS100 showed resiliency to Chair Powell's hawkish messaging and prospects for further tightening.

The correction is limited so far, the index is upbeat today and another effort to exit the daily Ichimoku Cloud seems reasonable. This will give it the opportunity to push for new 2023 highs (15,946), but 16,770 is distant.

On the other hand, the higher-for-longer prospects and the inability to capitalize on Nvidia's results could mean trouble. The recent slide has put NAS100 in a precarious positions. There is risk for a test of 14,400-14,336, but we are cautious for sustained weakness towards and beyond 13,724.