Nasdaq Composite: A dovish gift under the tree

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The Nasdaq Composite (+1.38% Wednesday) benefited fully from a more accommodating tone than expected from J Powell at the end of the last FOMC of the year. So of course – this was widely anticipated – the Fed left its rates unchanged, but its cumulative rate cut projections for 2024 are increasing, from 50 to 75 bps. This is certainly still far from the market’s hopes. But it is clearly likely to illustrate a change of state of mind at the head of the powerful monetary institution. Following these announcements, the yield on the 10-year American sovereign bond collapsed, falling below the symbolic threshold of 4%.

According to these “dot plots”, the central bank members’ median projection for 2024 key rates is 4.6%, which implies a total of 75 basis points (0.75%) of cuts rate next year (or three cuts of 25 basis points). According to Bloomberg, economists did not expect as much.

These new projections of Fed Funds reductions in 2024 constitute “a significant ‘dovish’ surprise that suits the market” for Joshua Jamner, analyst at ClearBridge Investments, a subsidiary of Franklin Templeton.

Mr Powell wanted to reassure one of the last hard points in the inflationary dynamic, namely tensions on the job market. At a press conference the head of the Fed insisted on “an increase in the active population and immigration which allowed the labor market to achieve a better balance between supply and demand. In addition, similar dynamics have been observed in other areas of the economy as supply chain bottlenecks continue to ease.”

“The market reaction to this development in Fed policy is logical: the prospect of more, and potentially earlier, rate cuts leads to lower short- and long-term interest rates, which should help rising valuations and stock prices.” And particularly on the most expensively valued stocks, those with a high PER which compete with sovereign rates when the latter tighten. However, the Nasdaq Composite brings together a number of files with very high PER, notably the Magnificent 7 (Alphabet, Apple, MetaPlatforms, Amazon, Tesla, NVidia).

KEY GRAPHIC ELEMENTS

Interestingly technical fact, the flagship index of technology stocks of the American stock market managed to trace a combination of candles in “three advancing soldiers” since last Thursday, all in increasing volumes, proof of the power of technical configuration. This predictive combination was followed by a bullish extension in equally increasing volumes.

FORECAST

Based on the key chart factors we have mentioned, our view is positive on the Nasdaq Composite Index in the short term.

This bullish scenario is valid as long as the Nasdaq Composite index is trading above support at 14360.00 points.

DAILY DATA CHART