Nasdaq 100 Sinks as Fed Weighs Faster Taper Timeline; Omicron Adds to Market Worries
NASDAQ 100 OUTLOOK:
- U.S. stocks plunge as Fed Chair signals support quicker taper of asset purchases program
- Nasdaq 100 slides 1.42% while the S&P 500 plunges 1.9%
- Covid-19 omicron variant fears appear to reinforce the negative market sentiment
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Most read: How Will the Omicron Variant Impact Markets?
U.S. stocks suffered heavy losses on Tuesday, weighed down by coronavirus concerns, but chiefly by indications that the Federal Reserve may speed up the pullback in stimulus to counter mounting inflationary forces. At the market close, the S&P 500 tanked 1.9% to 4,567, while the Dow Jones tumbled 1.85% to 34,484. Meanwhile, the Nasdaq 100 sank1.42% to 16,145, as Facebook, Alphabet, Microsoft, and Amazon came under intense selling pressure.
Yesterday I warned that increased uncertainty amid renewed pandemic worries could bias stocks lower in the near term as investors trim their exposure to risk assets. This fear has materialized to some extent after Moderna's CEO predicted that existing vaccines will offer less protection against the COVID-19 omicron variant first detected in Africa.
The negative market tone was notably exacerbated by comments made by Fed Chairman Powell at a congressional hearing. In his appearance before the U.S. Senate Banking Committee, Powell stated that the time has come to retire the word "transitory" when describing inflation and that it may be appropriate to wrap up the taper plan a few months sooner than planned to address elevated price pressures.
The central bank is reducing quantitative easing at a clip of $15 billion per month. At that pace, the bond-buying tapering scheme will conclude in June 2022, but if the institution were to accelerate the phase out process, the program could end sometime in the spring, a scenario that could allow policymakers to raise borrowing costs faster than expected. This is a major headwind for equities, particularly those with exorbitant valuations (tech and growth stocks for example).
Heading into December, the Fed pivot and coronavirus worries may act as bearish catalysts for stocks. Focusing on the latter, there are still many unknowns about the omicron variant, but we should learn more in the coming weeks after scientists conduct extensive epidemiological studies. If the new strain of the virus does not cause serious illness and remains sensitive to existing vaccines, Wall Street could stage an explosive rally, but if the opposite is true, stocks, especially those linked to the reopening of the economy, could be in for a major sell-off before the end of the year.
NASDAQ 100 TECHNICAL ANALYSIS
The Nasdaq 100 made a sharp turn lower on Tuesday after failing to clear resistance near 16,450. If dip-buyers don’t pounce on the opportunity in coming sessions, we could see a move towards channel support near 15,900, though a drop below this floor could set the stage for a pullback towards the 50-day moving average, now crossing the 15,585 area.
On the other hand, if buyers resurface and the index pivots higher, the first technical resistance to consider appears at 16,450. If this ceiling is taken out, the Nasdaq 100 could attempt to retest its record high at 16,765.
NASDAQ 100 TECHNICAL CHART
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---Written by Diego Colman, Contributor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.