News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Oil - US Crude
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Forex liquidity makes it easy for traders to sell and buy currencies without delay, and also creates tight spreads for favorable quotes. Low costs and large scope to various markets make it the most frequently traded market in the world. Learn more here: https://t.co/arxYmtQeUn https://t.co/rFlQtyQS81
  • Canadian Dollar snapped a three-week losing streak after USD/CAD stalled at key technical resistance. Get your CAD weekly forecast from @MBForex here: https://t.co/BPHuKecwnz https://t.co/73OmuCKfU9
  • Forex quotes reflect the price of different currencies at any point in time. Since a trader’s profit or loss is determined by movements in price, it is essential to develop a sound understanding of how to read currency pairs. Learn how to read quotes here: https://t.co/CNtqrKWDBY https://t.co/KzhQnGiLyt
  • A currency carry trade involves borrowing a low-yielding currency in order to buy a higher yielding currency in an attempt to profit from the interest rate differential. Find out if the carry trade suits your trading style here: https://t.co/7t4BzmLg8w https://t.co/cuneuJNZlH
  • Get your snapshot update of the of top level exchanges and key index performance from around the globe here: https://t.co/d8Re5anlG5 https://t.co/danCiP5vqK
  • Traders utilize varying time frames to speculate in the forex market. The two most common are long- and short-term-time frames which transmits through to trend and trigger charts. Learn more about time-frame analysis here: https://t.co/9S5tXIs3SX https://t.co/JhYoQ7I19K
  • The Nasdaq 100 index is aiming to breach a key resistance level at 14,950 for a second time. A successful attempt may open the door to further gains, although the MACD indicator flags signs of weakness. Get your equities forecast from @margaretyjy here: https://t.co/BEYupi32qB https://t.co/PWeXE8tZVY
  • Currency exchange rates are impacted by several factors. Are different world leaders a contributing factor? Find out here: https://t.co/4jsORznRTE https://t.co/t34kotPE8R
  • Many people are attracted to forex trading due to the amount of leverage that brokers provide. Leverage allows traders to gain more exposure in financial markets than what they are required to pay for. Learn about FX leverage here: https://t.co/BdgFmkRxVw https://t.co/lM1OIJdjhr
  • Trading Forex is not a shortcut to instant wealth, excessive leverage can magnify losses, and sentiment is a powerful indicator. Learn about these principles in depth here: https://t.co/lZFM8youtX https://t.co/6qGEVjDlN6
Nasdaq 100 May Outperform the Dow Jones as Treasury Yield Curve Flattens: Q3 Top Trading Opportunities

Nasdaq 100 May Outperform the Dow Jones as Treasury Yield Curve Flattens: Q3 Top Trading Opportunities

Margaret Yang, CFA, Strategist

Nasdaq 100 / Dow Jones Spread– Third Quarter Fundamental Forecast

  • The Nasdaq 100 index is heading towards all-time highs at the start of Q3
  • A flattening Treasury yield curve makes the tech-heavy index more appealing
  • The Dow Jones may be more vulnerable to a rapid rise in near-term rates

See the favorite trades from each DailyFX Analyst for the third quarter. Download our new 3Q top trading opportunities guide from the DailyFX Free Trading Guides!

The Nasdaq 100 index is heading towards all-time highs at the start of Q3, driven by earnings optimism as economic growth rebounds sharply from the depths of the Covid-19 pandemic. The Federal Reserve revised up this year’s US GDP growth rate forecast to 7.0% at the June meeting, underscoring strong momentum while raising concerns about inflation. The June FOMC meeting may serve as an inflection point for the central bank’s monetary policy stance, with a majority of Fed officials hinting at 2 rate hikes by the end of 2023, according to the dot plot. A debate about scaling back monthly asset purchases has also started among key members.

These developments led the US Treasury yield curve to flatten as investors attempted to price in earlier Fed rate hikes and a gradual tapering path. The 10-2 year Treasury yield spread plunged to 118 bps following the June meeting, marking a drastic decline from the recent peak of 156 bps seen at the end of March (chart below). Looking into the last rate-hike cycle, a rapid fall in the 10-2 year yield spread was followed by the Fed’s signal of tapering QE in 2013. This is because front-dated yields tend to rise faster than longer-dated rates during a tapering cycle.

A hawkish shift in the Fed’s monetary policy stance may mark another period of outperformance in the Nasdaq 100 index versus the Dow Jones Industrial Average. This is because a flattening Treasury yield curve makes the tech-heavy index more appealing when the front-end borrowing costs rise faster than the longer-end rates. Large-cap technology firms, such as Amazon, Tesla and Netflix, are particularly sensitive to longer-dated borrowing costs, as their valuations are tilted to long-term growth prospects. Smaller technology start-ups are also less sensitive to short-term borrowing costs as venture capital invested in them is usually locked in for 5-10 years or even longer.

Vulnerability of Value Stocks

For the Dow Jones Industrial Average however, value stocks such as McDonald’s, 3M and Coca-Cola may be more vulnerable to a rapid rise in near-term rates. This is because higher short-end borrowing costs make these dividend-paying stocks less attractive to investors than during an ultra-low interest rate era.

The Nasdaq 100/Dow Jones ratio shows a negative correlation with the US 10-2 year yield spread over the past few months, highlighting the possibility of trading of Nasdaq 100 versus Dow Jones spread as we move closer to a rate-hike cycle. On the other hand however, if the inflationary pressures become sticky and persisting, longer-dated yields may start to catch up with front-end rates, resulting in a steepening yield curve. Under this scenario, traders may consider doing the reverse – that is, looking for the Dow Jones to outperform against the Nasdaq 100.

Nasdaq 100/Dow Jones Ratio vs. US 10-2 Yr Yield Spread

nasdaq treasury yield chart

Chart by Margaret Yang, Created with TradingView

See the favorite trades from each DailyFX Analyst for the third quarter. Download our new 3Q top trading opportunities guide from the DailyFX Free Trading Guides!

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES