NASDAQ under pressure from the Fed

NQ100

Key zone: 29,300 -29,800

Buy: 30,000 (on strong positive fundamentals); target 31,500; StopLoss 29,600

Sell: 29,000 (on a decisive break above 29,500); target 27,500; StopLoss 29,400

High interest rates are raising return requirements for Big Tech, while corporate earnings will test whether investments in artificial intelligence can justify market valuations and set a new direction for the Nasdaq 100.

The U.S. technology sector faces a dual challenge: companies must demonstrate returns on their massive AI investments while adapting to high financing costs. Fed decisions and earnings reports from major corporations could determine whether October's correction becomes a temporary pause or the beginning of a more prolonged decline.

A quick recap:

The FOMC meeting is scheduled for October 27–28 and coincides with the earnings reporting period for major companies. The federal funds target range stands at 3.75–4.00%, while the prospect of further monetary tightening remains a subject of market debate. Even keeping rates unchanged would not be a strongly positive signal: results from Microsoft, Alphabet, and Amazon will be important catalysts.

Strong earnings and optimistic guidance could support a recovery in the technology sector. However, if cost growth outpaces improvements in financial performance, even earnings that beat forecasts may not necessarily stop the sell-off.

The main contradiction in the current situation is the high expectations for Big Tech's future earnings alongside the high cost of capital.

• Companies continue investing in computing capacity, data centers, and cloud infrastructure, anticipating years of demand growth.
• Inflation risks further complicate the situation. Tensions in the Middle East and oil prices above $100 per barrel could increase transportation and production costs, slowing inflation's return to target. Under these conditions, it will be harder for the Fed to ease policy without risking another acceleration in price growth.
• A stronger dollar could also complicate the financial performance of multinational corporations. When overseas revenue is converted into USD, currency effects can reduce reported figures even if business continues growing in local markets.

For short-term traders, the key indicator will be the Nasdaq 100's reaction to changes in U.S. bond yields.

• If the yield on 10-year Treasuries sustainably exceeds its recent high of around 5.31%, pressure on technology stocks could intensify, especially if real interest rates rise simultaneously.
• Falling yields combined with strong guidance from Microsoft and Alphabet could create conditions for an index recovery. However, the reason for the decline in yields will matter: markets may respond positively to easing inflation expectations, whereas recession fears could intensify equity selling.

Therefore, using Treasury yield movements as the sole signal for opening positions is risky.

To assess market direction, traders should simultaneously monitor the Nasdaq 100, two-year and 10-year Treasury yields, the SOX semiconductor index, NVDA and MSFT share prices, and market breadth. If the index recovers on the strength of only a limited number of the largest companies, the sustainability of that move is more questionable than when a broad range of stocks participates.

So What Is the Outcome?

The key question is whether companies can convert rising capital expenditures into sustainable profits and free cash flow.

Monetary policy is becoming a major factor for the Nasdaq: even strong results from individual companies do not guarantee index gains if high real bond yields continue to reduce the attractiveness of equities.

Over the next four weeks, the main risk remains a strengthening of expectations for renewed Fed tightening in December or in 2027. Such a scenario could trigger further valuation multiple compression, especially among companies whose valuations are largely based on distant growth prospects.

The technical picture also does not yet confirm that the correction has ended. A return of the Nasdaq 100 above the 30,000–30,300-point range could strengthen buyers' positions and open the way for another test of October's highs. Conversely, a break below support around 29,070 points would increase the likelihood of a continued decline.

So we act wisely and avoid unnecessary risks.

Profits to y’all!