Nasdaq 100 outlook dims on soft data ahead of Apple and Amazon earnings

• Nasdaq 100 outlook: Economic woes hit global stocks, sending bond yields tumbling
• Nvidia's continued volatility also undermining risk appetite, with the stock giving back much of Wednesday's sharp gains
• Anticipation builds for Apple and Amazon earnings in what has been a mixed-to-weaker earnings season for the "Magnificent 7"
• Nasdaq 100 technical analysis - bullish trend needs to hold to prevent deeper pullback

Video: Nasdaq 100 outlook video and insights on FTSE

Following the big tech-fuelled rally on Wall Street, the major US indices fell back, with the Nasdaq 100 being down about 1.5% at the time of writing. We had a number of weaker-than-expected US economic reports, in particular the ISM services PMI, while mixed technology earnings results and a more hawkish Federal Reserve and Bank of England policy decisions (and not forgetting the Bank of Japan), all weighed on risk appetite. The focus will turn back to earnings with Apple and Amazon due to post their results after the closing bell, before attention turns to Friday’s release of US jobs report. In light of this week’s price action, you’d feel these stocks will need to beat expectations to prevent the short-term Nasdaq 100 outlook turning bearish.

Economic woes hit stocks, sending bond yields tumbling

Today’s weaker US data has caused a big drop in yields, although this has so far not translated into higher stock or metals prices. Anyway, concerns were raised after PMI data showed manufacturing activity contracting by most in eight months, while initial jobless claims climbed to one-year high as hiring slowed.

The cooling jobs market and economy has raised market speculation that there will be three rate cuts to come before the year is out, despite the Fed appearing somewhat less dovish in their policy decision the day before.

In fact, there is now a greater risk tomorrow’s US non-farm payrolls report missing the mark, if today’s labour market indicators are anything to go by.

Jobless claims are continuing to rise too, with a print of 249K compared to 235K previously and expected.

The ISM manufacturing employment index plunged to 43.4 from 49.2, way below the expected 49.0 reading, and is the worst showing since June 2020, at the height of the pandemic.

It wasn’t just the employment component that weakened noticeably – new orders dropped too, with demand softening further and supply chain pipelines and inventories remaining full.

Thus, should NFP disappoint then the calls for the Fed to act will get louder.

European and Japanese stocks tumbled overnight

European markets also struggled, with the FTSE giving up the previous day’s gains and some after the Bank of England's close-call decision to cut rates by 25 basis points left investors, who were expected a more dovish stance, disappointed. Additionally, a significant overnight drop in Japanese shares dampened investor confidence, with equity investors dumping exporters amid a rising yen. The Bank of Japan's unprecedented tightening measures led to higher rates, negatively impacting real estate shares. Automakers and department stores, which had benefited from a tourism surge due to a weaker yen, also slumped. While further drops in Japanese stocks could negatively affect global markets, the repercussions are expected to be mostly confined to Japanese shares.

Nvidia's continued volatility also undermining risk appetite

A significant driver of Wednesday’s tech rally was Nvidia's remarkable 12% surge on Wednesday, following robust earnings from AMD (which, by the way, has lost all those gains and some). Nvidia became the third-most-valuable company globally, after witnessing a market value increase of $329 billion. Unfortunately, those most of those gains were wiped out as the stock tumbled nearly 6%. The critical question now is whether Nvidia can find its feet or whether this bearish momentum will continue heading into the close. In any case, it needs to reclaim broken support areas around $117.00-$120.00, to mark a bullish reversal in the trend.

Nasdaq 100 outlook: Anticipation builds for Apple and Amazon earnings

This week is crucial for tech earnings, with Apple and Amazon set to release their quarterly results. These reports are expected to significantly impact the tech-heavy Nasdaq 100, especially with the monthly US jobs report also on the horizon.

Apple is projected to report earnings of $1.34 per share on $84.3 billion in revenue. Key focus areas for investors include iPhone sales, gross margins, and AI advancements. While iPhone revenue may face pressure due to heightened competition in China, the services segment is anticipated to perform robustly.

Amazon is expected to announce earnings of $1.01 per share on $148.54 billion in revenue. Analysts will closely watch the growth in e-commerce, advertising, and AWS. Despite a recent dip, Amazon's stock has surged over 20% this year, indicating a positive long-term trend.

Mixed-to-weaker earnings season for the "Magnificent 7"

The "Magnificent 7" tech giants have delivered mixed results this earnings season.

• Meta Platforms surprised investors with better-than-expected second-quarter sales, driven by strategic investments in AI, enhancing targeted advertising. This development propelled Meta's shares 10% higher initially, but the stock has since lost much of those gains to hold around 4.5% in the green at the time of writing.
• Arm’s decision not to raise its annual forecast led to concerns about future growth and a 17% plunge in its stock price so far.
• Qualcomm was down nearly 10% despite a brief post-market rally, as investor optimism faded due to concerns about a sluggish recovery in the phone market.

Nasdaq 100 outlook: technical analysis

The technical Nasdaq 100 outlook is still arguably bullish, but now needs a fresh signal to excite the bulls. The index's rally on Wednesday bounced off a bullish trend line established since October, forming a bullish outside candle on the daily chart. This pattern erased previous losses, signalling potential bullishness. However, this came after a significant drop that had breached key support levels, including the highlighted 19570 area, where the 21-day exponential moving average also converges. As it turned out, this broken support has turned into resistance today, leading to fresh falls that have wiped out much of yesterday’s gains.

For the bullish trend to be re-ignited, the Nasdaq 100 needs to form a decisive bullish pattern and soon. For example, it needs to decisively break back above the 19570 level. At worst, it needs to hold its bullish trend line. Failure to do so could invalidate the bullish signal from Wednesday's rally. That, in turn, could pave the way for more losses in the days ahead. So, a lot hinges on the upcoming earnings from Apple and Amazon, and more importantly the market’s response.

In summary

The Nasdaq 100 outlook hinges somewhat on the upcoming earnings from Apple and Amazon, alongside Nvidia's ability to reclaims its form after recent struggles. Investors are keenly watching these tech giants as their performance will set the tone for the broader market. Technical indications suggest a cautious approach.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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