Marius Paun | London, UK | Senior dealer | Thursday, 15th October 2020
Nasdaq sold off for a second consecutive session with more losses potentially underway. There are less than three weeks until the US presidential elections and the risk-off sentiment seems to be omnipresent. This week started encouragingly for Nasdaq as the tech sector was driven higher by expectations regarding Apple’s release of its coveted 5G iPhone 12 model. However, the ongoing uncertainty convinced investors there’s little reason to add to their existing portfolios.
The gains quickly evaporated after Treasury Secretary Steven Mnuchin said that a deal between Republicans and Democrats would be difficult to reach before elections. On top of that, mixed quarterly earnings reports, especially from the banking sector where investment banks (JP Morgan and Goldman Sachs) have done rather well as opposed to commercial banks (Wells Fargo) also put pressure on stocks. Last but not least drug company Johnson & Johnson announced that it has halted trials of its experimental Covid-19 vaccine amid a spike in global infections.
Lately, we had a string of conflicting reports about progress followed the next day by the disagreements on the US fiscal front, adding to the overall uncertainty. An increasing number of analysts started to think that the odds of something being done before November 3rd are dwindling. From that point of view, Nasdaq recovering almost all of the losses following the early September sell-off shows the tech sector is still in demand.
There has been growing speculation in the media about the prospects of tighter regulatory oversight on tech leaders like Amazon, Google, Facebook, Apple which have grown enormously and are ‘threatening’ the economy. As we mentioned before they are responsible for the bulk of stock market gains this year so the possibility of the regulators forcing them to break up/ renounce their ‘monopoly position’ could seriously weigh on investors optimism.
The non-farm payrolls data released earlier this month showed the US gained 661,000 jobs in September less than the 850,000 expected. So the report was not very good for the stock market and furthermore, the rise in initial claims signals the labour market could be starting to wobble.
We also saw the presidential debate the other week between incumbent president Donald Trump and challenger Joe Biden. To say it was a disappointment would be an understatement. Trump refused to say if he would accept the results of the election, opening the door to a constitutional crisis. On the other hand, Biden refused to play down speculation that Democrats might try to increase the number of Supreme Court members. Those issues would only add to the current uncertainty in the markets.
The pessimism could be worsened by the surge in Covid-19 cases around the world, with leading European countries like France, Germany, Spain and the UK having imposed strict local lockdown recently. Both US and non-US companies are listed on the Nasdaq so what happens outside the US matters for the index as well.
Going forward, investors will undoubtedly keep an eye on the fifth stimulus package negotiations, updates on the virus infections/ casualties as well as vaccine trials developments. Economic data releases, especially relating to jobs market, and downbeat US inflation will also provide further clues as to whether sentiment could improve.
Nasdaq recovered most of the early September significant sell off after finding support at the 50% Fibonacci retracement at 10680. The short-term moving averages moved back above the longer-term ones and both pointing upwards. But the market price has just crossed below the short-term MA once more.
On the upside, buyers will be looking for a close above 11975, today’s opening. A close above resistance at 12185 will confirm that current comeback still has legs and might even retest the all-time high of 12468 reached on September 02nd. On the downside, bears will need to break below support just under 11745 first. A breach below could open the door for testing support at 11568 which coincides with 23.6% Fibonacci retracement.