Nasdaq 100 forecast: What does a slowing jobs market mean for stocks?

Dip-buying has always been the name of the game in the stock markets. Will we see yet another example of that today, after a weak US jobs report sent stocks lower? We are hesitant to turn bearish on the markets just yet and keeping the bullish Nasdaq 100 forecast intact.

 

Dilemma: rate cuts vs. weakening economy

 

There is clearly a dilemma in investors’ minds right now, which is why stocks initially rallied and then dropped. But we have seen this sort of price action before. Ultimately, the trend is bullish for markets and dip-buyers will use any excuse to buy any dips they can get their hands on. This could be yet another example. The dilemma is that on the one hand, a weakening jobs market clearly indicates that the economy is cooling, which should ultimately be bad news for company profits. But this is countered by argument that the accompanying lower borrowing costs with a weakening economy should soften the blow and provide a positive backdrop for stocks. Companies can use lower borrowing costs to invest and grow, and household to increase spending on credit. All told, today’s weaker jobs report should not significantly reduce the appetite for risk taking in the stock markets and for that reason we will maintain a still-bullish Nasdaq 100 forecast.

 

Markets take a wobble on the back of the jobs data

 

As fresh evidence of a cooling US labour market emerged, equities were trading lower at the time of writing and funds flowed into bonds, causing their yields to decline Traders are now convinced the Federal Reserve will be forced to act sooner rather than later to prevent the economy from losing more steam.

 

The nonfarm payrolls report painted a bleak picture, coming in well below expectations and confirming the softer trend seen in other labour data this week. September now looks all but certain for a rate cut, with attention quickly shifting to next week’s CPI release. A softer inflation print could see markets clamour for as many as three cuts before the year is out.

 

The prospect of earlier easing wasn’t enough to lift equities. The major US indices gave up earlier gains. But dip buyers could soon emerge as the major indices test short-term support levels.

 

Nonfarm payrolls rose by just 22,000 in August, while the unemployment rate ticked up to 4.3%, adding to concerns that the labour market is weakening.

 

Nasdaq 100 forecast: Key levels to watch

 

 

Our US Tech 100, based on the underlying Nasdaq 100 futures, is sitting quite close to the record high it in mid-August. So, for that reason alone, let’s not get bearish just yet on the Nasdaq 100 forecast. We will need to see clear evidence of a market top before entertaining the alternative to “buy-the-dip” trade ideas. Let’s see if this dip will be bought with the index now testing potential support in the 23,500 area. Here, the 21-day exponential average meets prior resistance. A clean break below here would target the recent low near 23,000. But if support holds, we could see a fresh rise to test the August ATH of 23,970 next. The other key support levels are shown on the chart, in case we see a more significant dip in the coming days.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R