Nasdaq 100 forecast: AI concerns linger despite solid earnings

It has been a risk off day so far with stocks, gold, silver and cryptos all taking a plunge. The Japanese yen has emerged as the strongest currency, with risk sensitive antipodeans falling along with the euro – the latter down due to ongoing French bond market turmoil. Along with global indices, US index futures have taken a drop, threatening to undo what had looked like a promising rebound on Wall Street yesterday. Our near-term Nasdaq 100 forecast thus remains modestly bearish following that trend line break and amid recent stock market weakness.

 

Risk off sentiment hits global markets

 

In Europe, it is a familiar story with tumbling French bonds and rising oil prices weighing on sentiment there. In the US, it is the AI spending concerns among factors weighing on sentiment. But the market reaction is becoming a bit more interesting. Treasury yields are falling, with the 10-year yield down to near that 5.00% level. Ordinarily, lower yields should provide some relief for richly valued technology stocks by reducing the discount rate applied to future earnings. Yet that relationship seems to have broken down today.

 

Why is that the case? Well, if yields are declining because investors expect weaker growth, then the lower discount rate comes with an obvious trade-off: a potentially weaker earnings outlook. For companies whose valuations depend heavily on strong future growth, that is hardly reassuring. This points to a bigger problem: earnings, valuations and whether the AI trade can continue to justify the enormous expectations already priced into these companies.

 

That said, we are not surprised to see the markets struggle. After all, the recent resilience had been heavily dependent on a relatively narrow group of mega-cap technology and AI names. Beneath the surface, the market had been considerably less convincing. Now that some of those AI leaders are also coming under pressure, the weakness is becoming much easier to see.

 

Solid tech earnings but shares fall anyway

 

Another bearish sign for the market is that even positive news is being ignored. We had several tech companies reporting strong results, but their shares fell, nonetheless. Meta’s latest results were strong, with revenue rising 26% to $64.6 billion, but shares were down over 2.5% in premarket. Another is Lam Research. The semiconductor equipment maker reported record quarterly revenue of about $8.2 billion, comfortably beating expectations. Yet the shares have fallen more than 7% in premarket.  Tesla is facing a similar reaction, with its shares down roughly 4% ahead of the open.

 

Strong results are no longer enough if the outlook fails to match an already demanding valuation. These are very different earnings stories, but collectively they point to the same shift in market psychology. Investors are becoming much less forgiving.

 

Nasdaq 100 forecast: Technical analysis and levels to watch

 

The technical Nasdaq 100 forecast has been deteriorating in recent sessions, along with global indices. Having broken below a bullish trend line extending back to March, this has strengthened the case that the broader uptrend is beginning to reverse. And we saw that with the market reversing despite solid earnings reports.

 

 

Among the key levels to watch 29,240 is an important one on our US Tech 100 index, which is derived from the underlying Nasdaq 100 futures. This level was being tested at the time of writing. Below there, 29,000 becomes the next obvious downside target. This 240-point range marks the point of origin of the previous rally in mid-September. The lowest point prior to that move was at 28,745, making this the clear line in the sand. If it breaks, then expect to see a potentially larger correction in the coming days with the next downside target likely to be the 28,190 level, followed by the 200-day average near 28,000.

 

On the upside, initial resistance is now seen around 29,542, marking yesterday’s low. Above that, 29,900 is the next resistance and then the psychological 30K level comes next. Further higher, the under side of the broken trend line sits closers to 30,100 area.