Nasdaq 100 index, QQQ stock forecast: don’t fight the Fed

The Nasdaq 100 index and Invesco QQQ stock got a rude wake-up call on Tuesday. After rising to a year-to-date high of $12,862, the tech-heavy index has retreated by more than 6.7% to $12,160. It remains significantly higher than last year’s low of $10,475. 

Don’t fight the Fed

The main theme in the financial market is the ongoing change of tune in Fed policy. Recent data shows that the American economy is doing well. Inflation remains above 6%, which is above the Fed’s target of 2.0%. The unemployment rate has crashed to the lowest level in 3.4%, the lowest point in more than 50 years.

Therefore, these numbers mean that the Federal Reserve has more work to do. Jerome Powell, the Federal Reserve chair, said that the Fed will likely continue hiking interest rates in the coming months. Economists expect that the bank will hike by 0.50% in March after hiking by 0.25% in February. The bank has already hiked by 450 basis points since last year.

Therefore, the weakness in the Nasdaq 100 index is mostly because of investors who fear fighting the Federal Reserve. In most periods, the index tends to underperform when the Fed is hiking. In a statement, Rick Rieder of Blackrock said:

“We think there’s a reasonable chance that the Fed will have to bring the Fed Funds rate to 6%, and then keep it there for an extended period to slow the economy and get inflation down to near 2%.”

Meanwhile, the bond market is still warning about the economy. The 2-year bond yield surged to the highest level since 2007. Similarly, the 10-year bond yield has risen to 4%, which means that the yield curve has plunged to the lowest point since 1981.

Most technology companies in the Nasdaq 100 index have been in the red. SiriusXM, Moderna, Rivian, D. and Enphase are the worst performers in the index this year. Other notable laggards in the index are Honeywell, Walgreens Boots Alliance, ADP, and Lululemon. 

On the other hand, the top QQQ constituents this year are Nvidia, Align, Warner Bros Discovery, Meta Platforms, Tesla, and Airbnb.

Nasdaq 100 index forecast

Nasdaq 100

Nasdaq chart by TradingView

The daily chart shows that the Nasdaq index has been in a tight range in the past few days. It is stuck slightly above the 23.6% Fibonacci Retracement level. The index has jumped slightly above the 25-day and 50-day exponential moving averages (EMA). It is also at the highest point on December 13.

Therefore, based on the fighting the Fed issue, there is a likelihood that the Nasdaq 100 index will continue falling as sellers target the key support at $11,000. If this happens, the QQQ stock price will retreat to the support at $250.