Nasdaq 100, the technology-heavy index is up by 20% so far this year. The rally in tech stocks led the index to storm into the bull market zone with major gains coming after the meltdown in the banking sector stocks.
The tech rally seems to have paused with views from the Fed indicating that the battle against inflation is nowhere near its end. Markets are aware that in such a hawkish environment, the rates will remain elevated which may pose a threat to the rally in Nasdaq 100.
Is the rally in tech stocks over? “In the context of the wider price action, the technical picture here remains bullish, as both the last two weekly candlesticks are pin bars or near pins, and both quite strongly reject the support level I identified at 12861.6,” says Adam Lemon, Chief Analyst, DailyForex.
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“There are no key resistance levels until 13735, so the price has room to rise over the coming week,” adds Lemon.
A roadblock in the Nasdaq rally may emerge if the Fed’s aggressiveness to deal with inflation remains high. Last week, Fed Governor Waller was talking about further policy tightening will be needed as inflation remains much too high.
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The 100 largest technology companies that are listed on the Nasdaq stock exchange are tracked by the Nasdaq-100 index, which measures their stock price performance. Back in 2022, Nasdaq-100 fell 33% and this time the rally seems to have just begun.
According to Piero Cingari, Benzinga Editor, there have been four bull markets in the Nasdaq 100 index since 1990:
From October 1990 to July 1998, the Nasdaq 100 delivered a total return of 962.4%, which corresponded to an annualized return of 25.8%.
From October 2002 to October 2007, the index delivered a total return of 153.4%, which corresponded to an annualized return of 16.3%.
From March 2009 to February 2020, the index delivered an astonishing total return of 1,156.1%, which corresponded to an annualized return of 21.1%.
From April 2020 to February 2022, the index delivered a total return of 134.2%, which corresponded to an annualized return of 46.2%.
An interesting thing about the Nasdaq-100 is that the top 7 corporations account for nearly 50% of the value of the index. The top US stocks in the index are Apple, Microsoft, Amazon, NVIDIA, Meta, Tesla and Alphabet.
Investors, however, need to be cautious of the bull rally in tech stocks. Sticky inflation, rising core inflation and increasing yields may lead to a fall in tech stocks in the near term.