Nasdaq 100: Path of Least Resistance Remains to the Downside as Key Earnings Loom

 | Apr 18, 2024 19:50

  • US index futures were slightly in the red amid scarce positive news, while geopolitical tensions lingered.

  • Despite initial relief from Israel's diplomatic approach, alternative actions remain possible amid ongoing calls for restraint.

  • With macro concerns weighing on markets, attention shifts to corporate earnings as a potential catalyst for a rebound.

    • Like the day before, European stocks regained some ground in early trade, ahead of the open on Wall Street, helping lift US index futures slightly. There wasn’t much in the way of positive news to soothe investor nerves.

    Perhaps there was some relief that so far, Israel seems to have responded primarily through diplomatic means.

    Nevertheless, it hasn't dismissed the possibility of a different response, despite ongoing calls from global leaders for restraint to avert a broader conflict in the Middle East.

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    On Wednesday, some of the early optimism in Europe was driven by mostly positive earnings, but this time there was much in the way of company news. Attention will be on earnings from the likes of Netflix (NASDAQ:NFLX) and Blackstone (NYSE:BX) today.

    On a macro front, we have initial US jobless data and speakers from the heads of the BoE, BoC, and Fed. But just like on Wednesday, we could see the early strength fade once US investors join the fray as macro concerns continue to linger.

    However, concerns about higher interest rates remain a key driver behind the recent sell-off in stocks. Those concerns intensified after the UK’s inflation fell less than expected on Wednesday.

    We have seen several Fed officials including Chairman Powell sounding more pessimistic about inflation, further fuelling fears over a more hawkish outlook for interest rates.

    Let’s not forget about the geopolitical concerns in the Middle East, which remain at the forefront of investors’ minds.

    Therefore, company earnings, as good as they are, may only provide a temporary lift as the macro outlook has dimmed for stocks in recent weeks.

    h2 Up to earnings to lift the mood/h2

    Over the past few weeks, stocks have encountered downward pressure. Traders are closely monitoring the escalating Middle East conflict and have been recalibrating their expectations regarding the timing and extent of Federal Reserve interest rate cuts.

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    Consequently, any prospect of market rebound now hinges significantly on corporate earnings. This was evident on Wednesday as positive earnings in Europe lifted the indexes, if only temporarily.

    Will we see more forecast-beating earnings as we head deeper into the earnings season? If so, this is something that could help alleviate pressure on the indexes.

    The earnings season for US tech giants is about to kick off, starting with Netflix today, due to release its results after the close of play.

    Although Netflix has ceased providing guidance on its subscriber growth, the increase in users continues to be a crucial metric for its earnings announcement. Let’s see if its results will justify the stock’s outperformance.

    h2 Markets under pressure so far in Q2 amid geopolitical risks and interest rates outlook/h2

    While US index futures have rebounded alongside European shares, the question remains whether this recovery will spark a rally or merely represent a temporary bounce, akin to recent days.

    Both US and global stock indexes have fallen out of favor in recent weeks, as investors exhibit hesitancy towards risk-taking.

    This was hardly surprising as they took profit ahead of earnings season and particularly following the record-breaking performance witnessed in the five months leading up to April.

    The primary concern for investors is the escalating tensions in the Middle East, with Israel seeking retaliation for Iran's recent attacks on Saturday, creating added uncertainty.

    Furthermore, investors are growing increasingly apprehensive about the rising yields on benchmark government bonds, as the possibility of a June rate cut by the Fed diminishes.

    Initially, traders had priced in approximately six rate cuts for 2024, but uncertainty now looms over the likelihood of even receiving a 50 basis point cut by December.

    The mounting government debt and its associated financing costs are significant concerns for investors, which explains the upward trajectory of gold prices despite the higher yields.

    The International Monetary Fund voiced criticism on Tuesday towards US policymakers for adopting unsustainable fiscal policies, which, while contributing to the nation's recent economic success, could lead to inflation and global financial instability if left unchecked.

    These macroeconomic factors, coupled with profit-taking by investors, have caused major indexes to breach key technical levels, much to the satisfaction of bearish investors.

    h2 QQQ technical analysis and trade ideas/h2

    The QQQ chart, which tracks the performance of the Nasdaq 100 index, showed further downside follow-through after breaking key support a couple of days ago at 434.