Nasdaq 100 forecast: Stocks take a dip amid pressure from yields and oil prices

This week, we have seen further warning signs emerge from crude oil and bond markets. Equity investors have finally started to respond by going a bit defensive. The Nasdaq 100 was down about 1.5% today, with other US indices and European markets also lower. The overcrowed AI trade is losing momentum as yields press higher. The key question is whether this is just a temporary respite before new highs are seen, or whether this marks the beginning of something more meaningful this time. The Nasdaq 100 forecast could turn negative if the rally in oil or bond yields is not stopped.

 

Stocks extend drop amid Middle East tensions

 

European and US indices fell further today following Monday’s reversal on Wall Street. The mood remains cautious. Sustained higher oil prices have revived concerns about inflation, with investors becoming increasingly concerned about the risk of a prolonged disruption to energy markets. For European equities, this is particularly important given its dependency on energy imports.  If oil prices continue to climb, the region could face another inflationary shock. But even Wall Street is now coming under pressure.

 

 

For now, the situation in the Middle East is showing little sign of easing. Donald Trump has rejected an extension of the truce, while Iran says the Strait of Hormuz will remain closed until the blockade and oil embargo are lifted. With oil prices remaining elevated and Natural gas prices already close to their highs for the year, the message from the energy market is therefore fairly clear: The risk of a prolonged disruption to energy supplies remains significant - and that could prove to be a problem for overvalued stock markets. 

 

Bond yields weigh on growth stocks

 

Meanwhile, rising government bond yields are also adding to a growing list of concerns. Higher yields increase the opportunity cost of holding assets that come with high risk and low yields. For example, growth stocks in the technology sector. And that could become a problem for the likes of the Nasdaq 100, as well as Germany’s DAX, given the European nation’s reliance on imported energy and the big technology stocks that make up the index. 

 

Today, the sell-off in bond markets accelerated, pushing yields even higher across the world, before easing a bit. US yields on the 30-year bonds have now risen to above 5.337%— its highest level in almost TWO decades. Elsewhere, Japan’s 10-year yield has also moved close to 3%, a level not seen since the mid-1990s, while eurozone yields also remain at multi-year highs.

 

For equities, the combination of higher energy costs and higher long-term borrowing costs is becoming increasingly uncomfortable. This makes the near-term Nasdaq 100 forecast somewhat bearish, although we need to see confirmation from price action.

 

Technical Nasdaq 100 forecast and key levels to watch

 

While it is too early to declare the end of the bullish trend, the risks of a correction are rising for the Nasdaq 100. The index has turned lower after again failing to hold sustainably above the 30,000 level. Here, a bearish trend line also offered resistance. With the next support at 29,850ish also taken out, this will now be the first level of resistance to watch in case we see a rebound. The next support is at 29,180ish, a prior resistance level. Below that we could see a more meaningful drop, possibly towards 28,190ish.

 

 

With oil prices rising, bond yields climbing and geopolitical risks still elevated, equities may find it increasingly difficult to ignore the pressure coming from the macro environment.

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R