Nasdaq 100 Bulls Seek Fresh Catalyst to Justify Next Leg Higher
The U.S. major indices are hovering near record highs; however, there seems to be a need for a new catalyst to maintain the momentum at these elevated levels. The bullish trajectory began in April and has been on a steady climb, driven by several favorable factors. These include President Trump’s decision to delay the reciprocal tariffs deadline, reduced tensions in the Middle East, and the approval of tax and spending policies central to Trump’s agenda.
In the background, ongoing optimism around artificial intelligence has been a driving force. It has significantly boosted shares of Nvidia, with other chipmakers and AI stocks also reaping benefits. Taiwan Semiconductor Manufacturing’s shares surged following their Q2 results, contributing to the positive futures outlook. However, the question remains whether new highs will be achieved, especially with growing concerns about inflation amid the looming threat of higher tariffs come August.
Before diving into the broader macroeconomic factors, let’s examine the Nasdaq 100 chart to identify key levels to monitor.
From a technical perspective, the Nasdaq 100 is one of the strongest indices at present. The index has consistently reached all-time highs with minimal setbacks since it exceeded December’s previous peak towards the end of June. Although there is now a risk of a pullback due to macroeconomic concerns, a clear reversal pattern would need to emerge for bearish trades to be considered. Until that point, dip-buying remains a prevailing strategy.
In the short term, support for the Nasdaq 100 futures is around 23,000, a level that has alternated as both support and resistance on an intraday scale. Should the index dip further, the trend line at 22,700 comes into play, where it aligns with the 21-day exponential average. Below this, the focus will shift to the December peak of 22,425 and prior resistance at 22,093.
On the upside, 23,100 emerges as a crucial level after the index failed to sustain its breakout above this mark on a recent Tuesday. The high for that day’s range was 23,222, currently standing as the all-time high.
With uncertainty lingering over U.S. trade policy, the markets are eagerly seeking a fresh catalyst to propel the next upward trend. It’s expected that a phase of consolidation or retracement might occur after the S&P 500 and Nasdaq 100 reached new peaks. European markets, such as the German DAX and the UK’s FTSE 100, have also recently set records but have seen a loss of momentum.
Although global stock sentiment remains optimistic, sustaining the buying trend on Wall Street without fresh catalysts will be challenging. The upcoming earnings season might serve as a catalyst before attention turns back to the August 1 tariff deadline.
Amidst this, reports surfaced regarding Fed Chair Jerome Powell’s potential dismissal, causing market panic before Trump refuted the claims. The market’s reaction underscored how such a move could undermine the Fed’s credibility. The Federal Reserve must adapt its strategy to cut rates when warranted by the economy, rather than yielding to external pressures.
The Federal Open Market Committee is wary that higher U.S. tariffs could soon reflect in inflation, making rate cuts risky as they might worsen price pressures. Nevertheless, the market anticipates a resumption of the Fed’s easing cycle. Expectations for a September 25 basis point cut declined after mixed inflation data and a robust jobs report.
As a result, the dollar has resumed its upward trend. The question now is whether equity markets will ease off.
The pivotal test is on August 1, with President Trump indicating no further delays. Progress has been underwhelming, and historically, Trump hasn’t hesitated to use tariffs, which could disrupt the bullish trend in U.S. equities observed since April.
As the August 1 deadline approaches without any agreements, the probability of tariff hikes increases, posing a potential obstacle for this bull market.
