Nasdaq 100 Pulls Back from Record Levels on Fed Hike Risks Ahead of Trump-Xi Summit

Nasdaq 100 futures are falling on Thursday, extending a sell-off in the previous session, amid a sharp rise in Treasury yields and caution ahead of today's Trump-Xi Jinping summit.

Just a day after the Nasdaq printed back-to-back record closing highs, strong PMIs, hawkish Fed commentary and soaring oil prices lifted the U.S. 10-year Treasury yield to its highest level in 19 years, hitting demand for equities.

PMIs at a 5 year high supporting US exceptionalism

The preliminary September S&P PMI data showed an extraordinary expansion in U.S. business activity. The composite PMI jumped to 58.4 in September from 56 in August, marking the fastest output growth in over five years and pointing to a private sector that is building momentum. The manufacturing PMI jumped from 53.9 to 57, while the services PMI accelerated from 54.6 to 58.7, highlighting strength in demand across both sectors.

The data supports the narrative of U.S. economic exceptionalism. Stronger-than-expected economic momentum and persistent inflationary pressures have lifted expectations surrounding the path for Federal Reserve rate hikes.

Following hawkish commentary from several Fed officials, including Governor Michael Barr, who warned that inflation is not clearly trending towards the 2% target, money markets are now pricing in a 53% probability of a 25-basis-point hike in October.

10-year Treasury at 19-year high

The hawkish repricing rippled through fixed-income markets, pushing the 10-year Treasury yield above the 5% threshold to its highest level since 2007. The move lifted the U.S. dollar to a fresh two-month high while simultaneously putting pressure across major stock indices.

WTI rises above $90

Complicating the outlook further, crude oil markets experienced high levels of volatility, with WTI rebounding above $90 after a five-day losing streak. This comes despite optimism surrounding diplomatic progress between the U.S. and Iran on the sidelines of the U.N. General Assembly. Reports that the administration is preparing a 90-day ban on U.S. diesel exports have also added to the focus on energy prices.

Looking ahead, attention will be on further Federal Reserve speakers and U.S. economic data, including jobless claims and new home sales. More hawkish commentary or stronger-than-expected data could further lift rate expectations and pull U.S. equities lower.

Trump -Xi Summit

The Trump-Xi Jinping meeting will also be in focus. The two leaders are expected to discuss difficult issues, including trade and Taiwan, as well as the AI race.

While Silicon Valley has raised concerns over the possibility of AI posing major risks to humanity, Washington and Beijing are more focused on global technological supremacy. Neither side appears prepared to slow AI development, but both understand that the issue is serious enough to require dialogue.

Potentially, we could see narrowly defined guardrails rather than speed limits on AI. Too much focus on controlling or slowing AI development, however, could unnerve markets and put further pressure on AI stocks.

Nasdaq 100 Technical Analysis

The Nasdaq broke out of its recent range and above falling trendline resistance to reach 30,365, a record closing high earlier in the week, before easing back to 30,300 at the time of writing testing the July high. The price remains above its 50 and 200 EMAs, keeping the technical picture bullish and constructive.

A break below 30,300 exposes the 30,000 round number and the falling trendline. A break below 28,900, the lower band of the recent holding pattern, could see sellers gain traction towards 28,200, the June low, ahead of the 200 EMA at 27,650.

Buyers will now look to rise above the 30,750 record high to bring 31,000 into focus. Above here, 32,000 could be the next logical level.