Nasdaq Forecast: Can Tech Stocks Extend Their Rally as Fed Hike Expectations Fall?
- Nasdaq futures extend gains after CPI cooled
- Fed September rate hike expectations fell
- US PPI data is expected to cool to 4.9% vs 5.5% in June
- Nasdaq technical analysis
Nasdaq futures are heading higher on Thursday after U.S. stock futures traded mixed overnight, following U.S. inflation data that was in line with forecasts and dampened expectations for a near-term Federal Reserve rate hike.
The Nasdaq and S&P 500 closed higher, while the Dow Jones finished modestly lower following the U.S. CPI data.
Headline CPI rose 0.1% month-on-month and 3.4% year-on-year vs 3.5% in June, while core CPI rose 0.2% month-on-month and eased to 2.5% annually from 2.6% in June.
The data came after a softer-than-expected non-farm payroll report on Friday and as oil prices remain volatile due to ongoing uncertainty surrounding the Middle East conflict. While oil prices fell 35% across May and June, they have since jumped 20% across July. The U.S.-Iran conflict and the ongoing closure of the Strait of Hormuz remain key near-term risks to the inflation outlook.
Following the CPI data, the market further reduced expectations for a hawkish Federal Reserve. According to the CME FedWatch tool, the probability of a Fed rate hike in September has fallen to 40%, down from 55% just a week ago.
PPI inflation data up next
Attention will now turn to U.S. PPI inflation data for further insight into price pressures within the economy. Expectations are for PPI to cool to 4.9% in July from 5.5%. An in-line reading or cooler-than-expected PPI figure could pull Treasury yields lower and help lift U.S. stocks further.
However, energy prices remain an important risk. Markets will continue to monitor developments in the Middle East closely, with tensions between the U.S. and Iran still unresolved and no concrete deal currently in place.
Pakistan has said it is working to bring Washington and Tehran back to the negotiating table. Any signs of progress could help sentiment and put pressure on oil prices, while a deterioration in relations could have the opposite effect.
AI and Earnings Keep Nasdaq Supported
The Nasdaq is also finding support from renewed demand for technology stocks.
StoneX rallied 11% in the previous session, making it one of the largest gainers on the Nasdaq, after Elon Musk said the company's AI business could generate annual revenue of around $500 billion.
Optimism towards technology stocks continued overnight, with another rally in tech shares pushing South Korea's KOSPI into a technical bull market.
Earnings will remain an important driver for the sector, particularly with Nvidia reporting later this month. The company's results and outlook are often seen as an important test of whether the strength of the AI trade can continue.
For now, falling Fed rate hike expectations and continued demand for AI stocks are providing support for the Nasdaq. However, oil prices and the Middle East remain the main risks, particularly if renewed supply disruptions push inflation expectations higher again.
NASDAQ technical analysis
The Nasdaq's recovery from the 27,000 low has run into resistance around 29,900. The index trades above its 50- and 200-day EMAs and is consolidating around 29,850–29,900, a resistance zone that has been tested several times.
Supported by the RSI above 50, buyers will look to break above 29,900 and the psychological 30,000 level, opening the door to 30,300, the July high. Above here, attention turns to 30,750 and fresh record highs.
Immediate support is seen around 29,400. A break below this level would expose the 50 EMA and horizontal support around 29,000. Below here, attention turns to 28,260, the June low.
