Nasdaq 100 Forecast: Stocks bounce after post-CPI drop

Stocks bounced back after the initial post-CPI drop, recovering from earlier weakness, as the dip-buyers once again stepped in to save the markets, with sentiment likely supported by Kamala Harris’ performance in the presidential debate last night.  Still, September has historically been a challenging month for the stock markets, and it could prove to be the case again as we head deeper into the month. Earlier today saw the major US indices decline after core inflation rose more than expected and this dampened the odds of a 50-basis point rate cut from the Federal Reserve. While the markets then bounced back from their lows to turn positive, sentiment remained cagey. Concerns over a weakening global economy have derailed stocks this month, particularly in China. In the US, there is also the added risk of the presidential elections. Investors appear hesitant to chase the rallies and we could see the recovery falter again later in the week. So far however, the Nasdaq 100 forecast hasn’t turned completely bearish as the tech-heavy index remains above long-term support levels. But with a lack of any major bullish catalysts, the upside is likely to be contained heading deeper into the month.

Inflation a bit hotter than anticipated

Following the release of the stronger core inflation data, the market has virtually priced out the probability of a 50-basis point rate cut at the Fed’s meeting next week. Those odds have been slashed from around 50% probability to just 13% at the time of writing. In other words, the market is now 87% confident that the Fed will cut rates by 25 basis points.

This comes after the core CPI rose slightly more than expected by 0.3% month over month, compared to 0.3% expected. The headline CPI was in line at 0.2% m/m and 2.2% year-over-year, down from 2.9% in the month before.

Nasdaq forecast: Economic Weakness and Elections Uncertainty

As well as a slightly stronger core CPI data as we saw today, there’s also various other factors at play right now that are helping to keep investors cautious. These include geopolitical risks, including US elections that could result in potentially more US-China trade tensions. The recent soft patch in US data is also raising recession alarm bells. Weakening labour market data has recently dragged down equities. In addition to the nonfarm payrolls report showing only a modest increase in jobs last week to the tune of just 142,000, we have also seen JOLTS job openings come in sharply below expectations.

Additionally, weakness in China has also impacted global oil and metals prices, adding to the uncertainty in sectors like energy and mining. Unless we now see a sharp improvement in US data, these recession fears wouldn’t go away. With technology stocks remaining quite expensive, I wouldn’t rule out the possibility of a correction in the coming days or weeks.

But so far, we haven’t seen any sizeable drops, which I think may be to do with growing anticipation that the Federal will cut rates more aggressively once it starts its easing cycle next week, with a total of 100 basis point cuts being priced in by the end of the year. However, despite these expected rate reductions, this optimism may not be sufficient to maintain market momentum into late September. Historically, the last two weeks of September have been the weakest for the S&P 500, making seasonality unfavourable for bullish investors.

Nasdaq 100 Technical Analysis: Key Levels to Watch

Source: TradingView.com

From a technical perspective, the Nasdaq 100 remains stuck inside a range. A reversal has not yet been confirmed, even though bullish momentum has slowed in recent weeks. The bulls would be pleased to see the index bounce off support around 18585 today, which marks the upper end of a larger support range that extends down to 18330ish. If and when this 18330-18585 support area breaks, only then will the bears’ control will grow. For now, they must remain patient and wait appropriate bear signals. For the bulls, it is important to trade from one level to the next until a clearer bullish trend emerges again.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R