The tech-heavy Nasdaq 100 index traded half a percent higher during the EU session Monday, pointing to a bullish open in the US.
Focus on inflation data, again
Consumer Price Index (CPI) data for December will be released on Thursday morning. This data will likely determine whether the Federal Reserve will hike interest rates by 0.25% or 0.50% at the beginning of next month.
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According to statistics from Bloomberg, economists anticipate that the headline CPI increased 6.6% over the previous year in December, which is a decrease from the 7.1% increase witnessed in November. The CPI most likely remained unchanged month over month.
The Fed regularly monitors core CPI, which excludes the fluctuating food and energy components of the index. Following a 6% spike in November, core inflation is anticipated to have climbed at a slower rate last month, coming in at 5.7%. Core CPI is expected to rise by 0.3% from the prior month after increasing by 0.2% in November.
Rebound in tech stocks?
The belief is that the Federal Reserve is almost finished combating inflation and that the technology sector, which has been worst hit by interest rate increases, would rebound. The most recent employment data revealed a reduction in wage growth, which the Fed is seeking as a sign of progress in its fight against inflation, bringing the prospect, while still not immediate, one step closer to reality.
“Ultimately, if the Fed gets inflation under control, tech has a chance to be the market leader, but the Fed is still in play for at least another six to eight months,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
On the other hand, according to a veteran tech expert, the comeback of tech stocks might take a year. As businesses implement cost-control measures and consumers reduce their spending, technology companies are forced to brush off their recession frameworks as they seek to build stock price recoveries.
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“In our coverage, close to 80% to 90% of technology companies will show a deceleration in growth in 2023,” Thill said, “and tech stocks don’t work in decelerating growth.”
The forthcoming earnings season may change the mood, but right now, it seems gloomy. According to data gathered by Bloomberg Intelligence, companies in the S&P 500 are anticipated to report a 2.7% fall in profits in the fourth quarter.
The next resistance is expected near previous lows at $11,460. Until then, the short-term outlook seems bullish, especially after the index has failed to post lower lows again.
Nasdaq index daily chart, source: author´s analysis, tradingview.com