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.
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.