Chart created with TradingView
NASDAQ 100 FUNDAMENTAL OUTLOOK:
- Latest selloff might show to be one other “wholesome correction” within the mid-term bull run
- A peaceful bond market and falling volatility (VIX) suggests lack of systemic dangers
- US presidential election, US-China spat, and rising US Greenback are among the many key dangers
Nasdaq 100 Index Outlook:
US inventory markets entered a technical correction in early September, as traders have been more and more cautious in regards to the tech-driven rally. The Nasdaq 100 index was among the many worst-performing US indices this month, falling over 9% from its all-time excessive. The S&P 500 and Dow Jones Industrial Common fell 6% and 5% respectively throughout the identical interval. Info know-how was the worst-performing sector this month, dragged by mega firms reminiscent of Tesla, Apple, and Alphabet.
Regardless of the continuing spat between US and China over know-how firms and mental property, tensions are unlikely to escalate into a significant market occasion earlier than the US Presidential election in November. A peaceful bond market, a falling volatility (VIX), and a non-event gold market recommend an absence of proof for systemic danger, no less than for now.
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Moreover, an enhancing basic image isunderpinningthetrajectory of the worldwide restoration. A ‘V-shaped’ restoration in ISM manufacturing PMI readings confirmed a stable rise in demand of products within the United State, alongside a broader rebound in international PMIs. The August US ISM PMI studying surged to 56.0, a degree not seen since November 2018 (chart under). A PMI print above 50.Zero signifies enlargement whereas under suggests contraction.
US ISM Manufacturing PMI Rebounds Sharply
Supply: Bloomberg, Dailyfx
The US job market is recovering too, regardless of a second viral wave. Weekly jobless claims information launched by the U.S. Division of Labor exhibits they’ve registered under the closely-watched 1 million mark for 2 weeks in a row (chart under). The unemployment price fell for a fourth consecutive month to eight.4% in August, beating market expectations of 9.8%.
An enhancing macro image has led to a rebound within the US Greenback index, which weighed on the US inventory markets lately. However a dovish-biased Fed and ultra-low rate of interest within the foreseeable future will assist to cushion the draw back.
US weekly jobless claims (in thousands and thousands)
Supply: Bloomberg, Dailyfx
Whereas the Nasdaq 100 has retraced greater than 9% from its latest peak, its valuation nonetheless seems to be prohibitively excessive from a historic perspective (chart under). Buying and selling at over 36 instances price-to-earnings (P/E), the valuation of know-how shares nonetheless dwarfs all different sectors, particularly vitality, actual property and financials. The latest pullback has narrowed the hole between mega tech and the cyclical sectors, however it might nonetheless not be sufficient. Sectoral rotation is a wholesome mechanism within the inventory market, and it might stick with it as enterprise exercise steadily returns to pre-Covid ranges.
Nasdaq 100 Index vs. P/E ratio
Bitterce: Bloomberg, DailyFX
Really helpful by Margaret Yang, CFA
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— Written by Margaret Yang, Strategist for DailyFX.com
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