NASDAQ Gains Momentum With the Buzz Around AI
Over the weekend, President Joe Biden and House Majority Leader KevinMcCarthy reached a favourable agreement to lift the federal debt ceilinguntil January 2025, amounting to $31.4 trillion. This deal includesspending caps and cuts in government programs, marking a significantdevelopment that will face its initial test in Congress on Tuesday duringthe House Rules Committee examination of the bill.
While optimism surrounds this debt ceiling agreement, safeguarding againsta default on U.S. debt, concerns persist regarding its fate as itprogresses through the divided Congress. Nevertheless, investors remainoptimistic that the committee will ultimately endorse the agreement as itreaches the House.
Economists anticipate that Friday's nonfarm payrolls report for May willreveal the addition of 180,000 jobs to the U.S. economy. In April, thecountry experienced an accelerated job growth of 253,000, coupled withsolid wage gains.
The forthcoming jobs report represents one of the final pieces of databefore the Federal Reserve's meeting in June. During the May meeting, theU.S. central bank signalled openness to pausing its aggressive rate hikingcampaign in June. Since March 2022, the Fed has raised rates 10 times,amounting to a 5.25%.
However, certain Fed policymakers have expressed concerns that inflation isnot cooling rapidly enough, a viewpoint reinforced by recent data showingcore inflation surging to 4.7% in April, well above the Fed's 2% target.
Nonetheless, the latest inflation data suggests that the Federal Reservemight not conclude its rate hikes at the June 14 meeting. According to theCME FedWatch tool markets are now pricing in a 60% chance that the Fed wouldraise rates by another 25-basis points at its meeting on the 14thof June.
In April the annual Personal Consumption Expenditures, or PCE index,expanded at 4.4% versus forecasts for 3.9% and previous growth of 4.2%. InApril alone, it jumped 0.4%, as expected and versus a prior expansion of0.1%.
Core PCE, which excludes the volatile food and energy prices, experienced a4.7% annualized gain, surpassing both the projected and previous rate of4.6%. On a monthly basis, it rose by 0.4%, exceeding the forecast and priorrate of 0.3%.
Source: Tradingview
From technical analysis point of view, the tech heavy benchmark index hasbeen trading in an upward trajectory over the past five months with recentprice action breaking above its key resistance of 13,720, which suggeststhat further strength could be seen in the coming month(s).
The daily Relative Strength Index indicator has reached overboughtterritory suggesting that a pull back to unwind the overbought momentumconditions could be seen soon. However, a subsequent re-test of the 15,200zone appears to be highly likely.
The big tech rally from the onset of the year has further to run as the risk of a U.S. recession drives investors into stocks that offer growth. Investors have little clarity on interest rates and the economy, which boosts the appeal of stocks with robust cash flows and promising revenue growth, despite having hefty price tags. The tech-heavy index has erased more than half the losses it saw from its November 2021 high and is gaining more momentum with the buzz around artificial intelligence.