STOCK MARKET FORECAST: NASDAQ COMPOSITE MIRRORING TREASURY YIELDS, INFLATION FEARS
- Nasdaq price action pressured during Friday morning trade as Treasury bond yields jump
- Flash US PMI data just released by IHS Markit shows business activity accelerating in May
- Treasury yield volatility surrounding inflation and Fed taper fears to dominate risk trends
The Nasdaq Composite looks likely to start receding from session highs in the wake of robust US PMI data crossing market wires shortly after the opening bell on Wall Street. Stocks might struggle to maintain gains notched earlier in the week as investors shift focus back to the threat of Fed tapering. The flash US PMI survey for May blew past consensus forecast with business activity showing an “unprecedented expansion.”
As detailed on the DailyFX Economic Calendar, the headline PMI figure jumped to 68.1 from 63.5 reported in April. The composite PMI, manufacturing PMI, and services PMI all hit their respective highest readings on record. It was also highlighted, once again, how cost pressures continue to mount. The rate of input price inflation soared to a new survey record high and contributed to the sharpest rise in output costs since data collection began in 2009.
While strong economic growth is widely welcomed, the pace of the recovery could give Fed officials a headache. Major stock indices like the Nasdaq, S&P 500, and Dow might face renewed headwinds as well. This is considering recent FOMC minutes, which noted that “a number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”
NDX – NASDAQ PRICE CHART: DAILY TIME FRAME (26 OCT 2020 TO 21 MAY 2021)
Chart by @RichDvorakFX created using TradingView
That said, Nasdaq price action appears to be facing some pushback around its 20-day simple moving average. This technical barrier around the 13,500-price level might cap potential advances by the Nasdaq. If stock market bears start to wrestle back control here and notch a close below the 50-day moving average, that could open up the door to further selling pressure. The Nasdaq does enjoy formidable support around the psychologically-significant 13,000-price level, however.
Nasdaq bulls may look to defend this area of buoyancy underpinned by month-to-date lows, the long-term ascending trendline, and bottom Bollinger Band. On the other hand, reclaiming the 20-day simple moving average could motivate a larger rebound toward the 14,050-price level where all-time highs reside. I will ultimately be watching yields on ten-year Treasury bonds to help gauge investor risk appetite and where Nasdaq price action might head next. Sharp rises in Treasury yields likely reflect intensifying Fed taper fears. Correspondingly, that would stand to weigh negatively on the broader stock market and tech-heavy Nasdaq in particular.
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
