Nasdaq 100 to benefit from Fed’s less hawkish stance

US stocks rebounded on Thursday (Dec 8), with the S&P500 Index breaking its longest losing streak since October 2022. Despite the recovery, both the S&P500 and Nasdaq 100 had declined more than 2 per cent as at the closing on Thursday.

The US market has been reacting to US economic data and expectations on how they might affect Federal Reserve policies. The weekly jobless claims report from the US Labor Department reached a 10-month high, continuing the narrative of a weaker labour market supporting the Fed’s pivot to slow down its tightening measures. However, the data might be skewed due to the end-of-year holiday period.

The US Federal Reserve will conduct its final meeting for 2022 on Dec 13 and Dec 14. Though a slowdown on the pace of rate hikes to 50bps is expected, the continued increase in interest rates is expected to further slow down the economy. Stock markets, however, will likely benefit from the confirmation of the US Federal Reserve pivoting away from its hawkish stance on interest rates and policies.

Bullish scenario

The Nasdaq 100 maintained above the October low of 10,440 during the plunge in November, thereafter rising to test the 12,000 level twice in mid- and end-November. With the 20-day and 50-day Exponential Moving Average (EMA) acting as support, the index might look to break the 12,000 level in the final month of 2022, with the holiday season and potential Santa Claus rally.

The Relative Strength Index (RSI) also shows that the index is maintaining its uptrend momentum, staying above 50 for most of the time after the mid-November rally. Upside might be limited by the 200-day EMA line and a resistance zone might form between the 12,400 and 12,500 levels.

Bearish scenario

If the index fails to break above the 12,000 level, it might act as a strong resistance going into 2023, with the EMA line possibly turning into resistance from acting as a support. There are still other factors that might impact the market, such as the US Fed’s meeting minutes and other releases of economic data.

The Nasdaq 100 might decline back to the 11,000 to 11,200 region, with the psychological level and Fibonacci’s 23.6 per cent level acting as support zone.

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The writer is senior investment specialist at Phillip Securities