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Nasdaq 100 Hits Record High as Powell Signals Tapering by Year End

Nasdaq 100 Hits Record High as Powell Signals Tapering by Year End

Margaret Yang, CFA, Strategist

NASDAQ 100 FORECAST: BULLISH

  • The Nasdaq 100 index rallied 1.01% after Powell’s speech at the Jackson Hole symposium
  • The central bank is likely to scale back bond buying program by this year, but remains patient to interest rate hikes
  • The US Dollar pulled back alongside yields, suggesting that the market is well prepared for the start of tapering

Wall Street equities extended higher into record territory as market participants welcomed a dovish-biased message by Fed Chair Jerome Powell in his speech at the Jackson Hole symposium. Powell said that the central bank is likely to start tapering its $120 billion per month bond purchasing program by this year, largely in line with market expectations. He also emphasized that interest rate hikes will not immediately follow after tapering was over. That said, the ultra-lowinterest rate environment is here to stay, benefiting the tech sector that is most sensitive to rates.

Markets responded positively, with the Dow Jones, S&P 500 and Nasdaq100 climbing 0.69%, 0.88% and 1.01% respectively on Friday. The DXY US Dollar index fell 0.39% to 92.68, and 10-year Treasury yield declined 2.18% to 1.31%. This suggests that investors are well prepared for tapering, and Powell’s speech soothed market fears and boosted confidence.

Looking ahead, the full FDA approval of Pfizer’s Covid-19 vaccine may expedite the vaccination campaign in the US and around the world. Yet, pandemic situations, US-China spats, geopolitical tensions in Afghanistan and earnings outlook remain some of the top market themes towards the end of the year.

Meanwhile, US Core PCE inflation came in at 3.6% YoY in July, in line with expectations. Growth in price levels seems to be stabilizing in recent months, echoing the Fed’s view that inflationary pressures are “transitory”. Investor confidence may be further lifted in the month to come if inflation continues to moderate and revert to the normal range.

US Core PCE Price Index (YoY)

Nasdaq 100 Hits Record High as Powell Signals Tapering by Year End

Source: Bloomberg

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

To contact Margaret, use the Comments section below or @margaretyjy on Twitte

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

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