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Key Points
- Alphabet and Microsoft’s earnings impacting Nasdaq Futures.
- High tech valuations demand earnings justification.
- Fed rate decision will influence market sentiment.
Overvalued Tech Stocks Impacting the Market
U.S. stock index futures are putting in a mixed performance during Wednesday’s pre-market session, with the Nasdaq-100 Index pressured by the quarterly results of Alphabet and Microsoft.
In my opinion, the market’s focus is shifting from Federal Reserve rate policy to tech stock valuation, prompting a reassessment of high-flying tech stocks.
At 10:04 GMT, blue chip Dow Jones futures are trading 38652.00, up 40.00 or 0.10%. Benchmark S&P 500 Index futures are at 4927.50, down 23.50 or -0.47% and tech-heavy Nasdaq-100 Index futures are trading 17384.75, down 203.75 or -1.16%. The Dow is trading better because of its limited exposure to technology companies.
Tech Giants’ Earnings and Market Reaction
After-hours trading saw Alphabet’s shares drop over 5%, and Microsoft’s nearly 1%, despite both companies surpassing top and bottom line expectations. Alphabet’s shortfall in ad revenue against analysts’ forecasts has raised concerns. This pullback, despite positive results, suggests a trend of “buy on rumors, sell on news,” where investors opt to secure profits rather than wait for earnings to justify high valuations.
Tech Sector Valuation Concerns
Currently, the tech sector trades at a high valuation of nearly 29 times its 2024 earnings. This elevated price-to-book level demands significant earnings expansion for these tech companies to sustain their market positions. Investors are now focusing on whether these firms can enhance earnings to justify their lofty valuations.
Fed’s Rate Decision and Treasury Yields
The Fed’s rate decision remains a key factor for traders. With the fed funds futures market indicating a high likelihood of unchanged rates, investors are seeking clues on future policy shifts. Treasury yields have fallen as the market anticipates the Fed’s decision, reflecting the cautious sentiment.
Short-Term Market Forecast
In the short term, the market is likely to continue scrutinizing tech stock valuations and the Fed’s policy direction. If tech earnings fail to meet the high expectations set by their current valuations, we could see further corrections in the sector. Additionally, the Fed’s stance on interest rates will play a crucial role in shaping market sentiment, particularly in the tech sector.
The market appears cautious, with a focus on upcoming earnings reports and economic data, including Boeing and Qualcomm’s results and ADP’s private payrolls report.
Technical Analysis
E-mini Nasdaq-100 Index futures are down sharply in Wednesday’s pre-market session after gapping lower on the opening. Although there hasn’t been confirming follow-through selling pressure, the price action suggests momentum is ready to shift to the downside. Once confirmed, the sell-off is likely to intensify with the 50-day moving average at 16776.22 the next likely target.
This article was originally posted on FX Empire
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
