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Nasdaq jumps to 7-mth highs – begins new bull market

A new bull market in stocks is born - how long will it last?

The tech-heavy Nasdaq 100 index was up again on Friday, posting a 9% gain in March as investors continued to bid stocks to new swing highs amid expectations of the peak in US interest rates.

Mixed inflation data

The Fed’s preferred inflation index – Core PCE Deflator – was anticipated to stay “sticky” at 4.7% (but instead came in marginally lower at 4.6% YoY, the lowest since October 2021). The headline PCE dropped to 5%, the lowest since September 2021.

Nonetheless, while acyclical core inflation declined, cyclical core inflation continued to rise, which poses an immense challenge for the Federal Reserve. Since 1985, cyclical core PCE inflation, which measures inflationary pressures related to the current economic cycle, is at an all-time high.

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A deceleration in inflation might relieve pressure on the Federal Reserve to continue its rate-hiking campaign. However, Fed members indicated earlier this week inflation would likely continue in the spring due to persistently substantial price rises and indications of improvement in the banking crisis.

Thursday, Susan Collins, president of the Federal Reserve Bank of Boston, stated that more tightening was necessary, while Thomas Barkin, president of the Federal Reserve Bank of Richmond, indicated that the Fed could raise interest rates further if inflation worries remain.

Impressive bull runs for tech stocks

The Nasdaq 100 (NDX) has just entered a new bull market and is poised to record its biggest first-quarter return since 2012 – 18.5% as of the last trading day. Apple and Amazon are up more than 20% this year, Tesla has increased by about 60%, and Meta Platforms is up more than 70%. This quarter, chipmaker Nvidia is reaching an astounding 90% return, its highest in almost two decades.

If equities “end the week in the green, that’s a big deal considering how almost disastrous the rest of the month was,” said Craig Erlam, a senior market analyst at Oanda. “Confidence is easily shattered and difficult to restore, and a positive end to the week would send a strong signal that investors are feeling reassured by the lack of turmoil recently.”

Some banks are turning bullish again

Citi analysts are increasingly optimistic about US stocks. As a result, the analysts changed their rating for US equities from Underweight to Overweight since this area tends to perform more defensively than other markets during periods of declining EPS.

Analysts noted in a client note, “We believe investors will continue to rotate into solid Growth companies.”

The major support is now at previous highs at $12,900, and as long as the Nasdaq index trades above it, further gains are likely, targeting the August peak near $13,600.

Nasdaq daily chart

Nasdaq daily chart, source: author´s analysis, tradingview.com

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