Stock Indices Between Reality And Expectations: Market Analysis By Rania Gule

Rania Gule is a Market Analyst at shares insights and market analysis of current state of stock indices.

Stock Indices Between Reality And Expectations: Market Analysis By Rania Gule

The Nasdaq 100 index declined within a narrow range by 0.6%, starting Thursday’s trading at $17,851. This comes after yesterday’s U.S. stock indicators showed a short-term downward trend, and cautious sentiment prevails among investors expecting new insights into inflation data from the United States and Europe later today.

The end of the earnings season, following a series of positive reports from leading U.S. companies, paves the way for a downward correction. It’s noteworthy that Salesforce’s quarterly disclosure is expected to show an increase in revenues up to $9.22 billion, potentially supporting a return to gains after the modest losses earlier, and likely strengthening the Nasdaq index.

In my perspective, global stock indices may remain relatively stable approaching the end of the week. The FTSE 100 index has shown weak performance, currently down by 0.75%. On the foreign exchange front, the dollar is performing the best among the ten, as risk aversion slightly influences market sentiment. At the same time, traders await crucial data on Core Personal Consumption Expenditures, set to be released today.

The U.S. GDP growth came in at 3.2%. Based on this data, the American consumer appears robust, nearing the inflation target set by the Federal Reserve. A soft landing for the U.S. economy seems to have occurred. However, despite the optimism, the situation appears more challenging because these data do not provide a clear signal on when the Federal Reserve should cut interest rates.

The Fed will monitor more indicators and data figures throughout 2024 before deciding on future monetary policy. Economic data this week has been mixed, with Durable Goods Orders weaker than expected, and confidence indicators experiencing a significant decline. The Consumer Confidence Index released by the Conference Board for February hit its lowest level since November. Cautiously, these data suggest that the pace of consumption may slow, potentially threatening future U.S. GDP growth, keeping recession concerns somewhat present.

Currently, the GDP for the first quarter is expected to reach 3.2%, higher than last week’s expectations of 2.9%. Therefore, while it is essential to consider each economic data point individually, looking at the broader economic condition is preferable. If the U.S. economy is growing at a rate of 3.2%, it is rapid, and it is unlikely to align with Federal interest rate cuts in the first half of this year.

From my perspective, one sign of economic strength in the United States is the outperformance of the discretionary consumption sector in the Standard & Poor’s 500 index compared to the basic consumer goods sector. This indicates that the American consumer is happy to spend money on non-essential items rather than just basic goods, a sign of a strong consumer. This suggests that we are still at the peak of consumption in the United States, and its contribution to GDP growth may continue to be positive for the markets.

Technical Analysis of the NASDAQ100 Index (US100) Prices:

The Nasdaq index (US100) is currently moving in a tight triangle pattern on the chart throughout the day, since reaching its peak at $18,100 on February 23rd, which was its historical high. This movement is supported by a delicate balance between buying and selling forces. A breakthrough below the key support level at $17,633.25 could intensify selling pressure, targeting the lower limit of the Bollinger Bands at $17,328.

A decline in the Relative Strength Index (RSI) to the oversold region would indicate strength in the bearish momentum. At the same time, the Moving Average Convergence Divergence (MACD) remains indistinct and neutral regarding the current trend direction.

NASDAQ100 Index (US100) – Prices Chart –

However, if the continuous upward momentum resumes, the price may be able to push the index above the triangle base, shifting the focus toward resistance at $18,006.35. A sustained move beyond this resistance could lead to challenging further levels at $18,036.80 and $18,069.59, potentially triggering a strong upward trend.

With attention on the market pricing in the U.S. Gross Domestic Product (GDP) growth report, a pivotal report shaping expectations for further interest rate cuts. Additionally, weekly adjustments in crude oil reserves and the trade deficit in goods for January may impact the energy sector and stimulate capital reallocation across industries, influencing broader market volatility. At the same time, moving averages currently support the prevailing downtrend momentum.

I believe the current consolidation of the Nasdaq index within the triangle pattern indicates a crucial turning point for prices. The current technical landscape, alongside impending earnings and economic reports, presents a complex scenario for market participants. Therefore, monitoring these key factors will be essential to navigate expected market fluctuations and identify potential opportunities in the coming days, with extreme caution advised.