Indices weekly outlook: Nasdaq 100 drop puts tech stocks in focus

Friday’s sharp sell-off ensured that tech-heavy indices, particularly the Nasdaq 100, ended the week in the red. This came despite a midweek boost from the Federal Reserve, which delivered its third consecutive 25-basis-point rate cut and reaffirmed expectations for another reduction next year. Early optimism quickly faded, however, as earnings disappointments from two major AI bellwethers triggered profit-taking and raised doubts over whether a Santa Rally will materialise as we head towards year-end. Judging by the bearish candle on the Nasdaq 100, a weaker start to the week shouldn’t come as surprise.

 

 

Tech dominance under pressure as rotation gathers pace

 

A key theme is starting to crystallise as the calendar flips closer to the new year: the mega-cap technology names that have carried this bull market may no longer be able to do all the heavy lifting. Investor confidence in the sector is being tested, particularly around whether current valuations and aggressive artificial intelligence spending can continue to be justified.

 

That scepticism intensified after underwhelming earnings from Oracle and Broadcom, both seen as critical proxies for AI-related demand. Their results failed to clear an already high bar, reinforcing concerns that expectations may have run ahead of reality.

 

At the same time, sentiment towards the broader US economy remains constructive, thanks to some improvement in data. That combination opens the door for further rotation into lagging areas of the market, including cyclicals, small-cap stocks, and other economically sensitive sectors. Recent relative strength in auto parts and transportation stocks since late November suggests this rotation is already underway.

 

Rising bond yields remain the key risk

 

Whether equities can stabilise or rebound from here will largely hinge on the bond market. Rising Treasury yields tend to weigh most heavily on high-growth technology stocks, and last week was a textbook example of that dynamic.

 

Ahead of the late-week sell-off, falling yields had provided temporary relief after the Fed kept the door open to further easing and announced fresh bill purchases to rebuild bank reserves. That supportive backdrop quickly reversed as yields rebounded, dragging equities lower.

 

The move in long-dated bonds is particularly notable. The 30-year Treasury yield pushed as high as 4.867% on Friday, its highest level since early September, before easing slightly. This is not the sort of reaction one would expect if markets fully believed the Fed was turning more dovish. Instead, it suggests investors remain convinced that rates will stay higher for longer — a potentially bearish signal for tech-heavy indices. A decisive break above 4.90% could inject fresh volatility into risk assets heading into year-end.

 

Jobs data takes centre stage

 

Attention now shifts back to incoming data. While investors braced for a hawkish cut at last week’s Fed meeting, the outcome was less aggressive than feared. Only two officials dissented, and the Fed maintained a rate cut in its median projections for 2026. Chair Powell also pushed back against the idea that policy has hit a hard pause, stressing that rates are now within a plausible neutral range and that the Fed remains flexible.

 

Powell also highlighted a heavy run of data ahead of the next meeting. The delayed November jobs report due on Tuesday now takes centre stage, alongside Thursday’s CPI release. With the Fed’s focus firmly on the labour market, any upside surprises could quickly push bond yields higher. That would likely extend pressure on tech stocks, while potentially offering support to growth-sensitive small caps and cyclicals.

 

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R