Macro and geopolitical risks keep a lid on the Nasdaq: What’s next for the market?

FUNDAMENTAL
OVERVIEW

The Nasdaq continues to
consolidate near monthly lows as weakness in software stocks has been putting a
lid on the index. There’s also been lots of uncertainty on the macro and
geopolitical side that’s been keeping the market on edge.

The risks we had were the
US Supreme Court decision on tariffs, the Fed interest rates path and the potential
US-Iran military escalation.

The US Supreme Court ruled
against Trump’s reciprocal tariffs on Friday which triggered a short-term rally
in the Nasdaq. Trump has already imposed new tariffs under a different law and
USTR Greer has stated that the tariff deals remain in place and they will be
honoured. The new levies reduce the effective average tariff rate, which could
be a positive at the margin.

In terms of Fed interest
rates path, the market is still pricing 57 bps of easing by year-end which could
be at risk of a hawkish repricing on further improvement in the US labour
market data. In fact, Fed’s Waller yesterday mentioned that he might want to
hold rates steady if we see a repeat of the strong January’s NFP report. Therefore,
next Friday is going to be key as good data could weigh on the market in the
short-term on a hawkish repricing.

Lastly, we have the US-Iran
military escalation risk. This is one of the biggest risks because if a
military conflict were to break out, we would see oil prices skyrocket. This
would be a negative shock for the global economy and lead to stagflation risks.
The first reaction in the markets would be strong risk aversion. We would
highly likely see a huge selloff in the stock market as future growth
expectations would turn negative.

To sum up, there are lots
of downside risks at the moment with little reasons for a rally into new all-time
highs. The macro backdrop is still positive given the easing inflation and improving
labour market, but that could change quickly, so traders will need to be
careful.

NASDAQ TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On
the daily chart, we can see the
Nasdaq has been trading in a wide range
since October of last year. Such long consolidations generally lead to big
trending moves once the price breaks out. Until then, the market participants
will continue to play the range.

NASDAQ TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On
the 4 hour chart, we can see the
price broke above the downward trendline recently which could be a signal of more
upside to come. For now, the price got stuck in a tight range between the
24,700 support and the 25,130 resistance. A break below the support will likely
take us back to February lows, while an upside breakout should lead to a rally
to the 25,400 level next.

NASDAQ TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, there’s
not much we can add here as the buyers will keep on stepping in around the
support and increase the bullish bets on a break above the resistance, while
the sellers will continue to pile in around the resistance and increase the
bearish bets on a break below the support. The red lines define the average daily range for today.

UPCOMING CATALYSTS

Today we have the weekly US ADP jobs data. On Thursday, we get the latest US
Jobless Claims figures. On Friday, we conclude the week with the US PPI report.
Also, watch out for US-Iran headlines.