Nasdaq 100: Can Tech Stocks Rally Sustain? Key Levels and Fed Policy in Focus Today

Wall Street Faces Decline as Inflation Data Fuels Rate Cut Speculation

U.S. stocks experienced a sharp decline on Wednesday, while Treasury yields dropped to their lowest point in over a year following the release of key inflation data. The Consumer Price Index (CPI) report heightened expectations that the Federal Reserve will implement a 25 basis point rate cut at its upcoming meeting. Meanwhile, oil prices rebounded, and political uncertainty added to the market’s cautious sentiment after the U.S. presidential debate.

Inflation Slows but Core Remains Sticky

The U.S. Labor Department’s CPI report delivered mixed results. Overall inflation cooled to 2.5% on an annual basis, marking a 40 basis point decline from its peak and falling below market expectations. However, core inflation, which excludes food and energy prices, remained more resilient, rising 0.3% month-over-month and 3.2% year-over-year. Peter Cardillo, chief market economist at Spartan Capital Securities, noted that while headline inflation is moving in the right direction, core inflationary pressures remain a concern.

This data cemented expectations of a 25 basis point rate cut from the Federal Reserve, with traders pricing in an 85% chance of such a move, according to CME’s FedWatch Tool. A larger 50 basis point cut, previously speculated by some, now appears off the table.

Nasdaq Recovers as Political Uncertainty Rises

Despite early losses, the Nasdaq turned positive by mid-session, supported by another successful test of its 200-day moving average at 18584.23.

Traders are eyeing this level as a key trigger for a potential surge toward the 50-day moving average at 19473.05, which could bring further upside momentum. Meanwhile, the S&P 500 and Dow Jones Industrial Average remained under pressure amid broader market uncertainty.

Political developments also influenced sentiment, with investors digesting the aftermath of Tuesday’s presidential debate between Vice President Kamala Harris and former President Donald Trump. Betting markets saw an increase in the odds of a Harris victory, which has implications for corporate tax policy and tariffs.

Stocks tied to a Harris win, such as solar companies Sunrun and SolarEdge Technologies, saw gains, while those aligned with Trump, including cryptocurrency-related shares, posted declines. Trump Media & Technology Group fell over 13% after the debate.

Energy and Financials Struggle

Energy stocks struggled, falling 1.11%, despite U.S. crude oil rebounding 2% after hitting a three-year low. Concerns over slowing demand in China and OPEC+ members increasing production in December have driven volatility in the oil markets. Claudio Galimberti, an analyst at Rystad Energy, suggested that while some traders fear Brent prices could drop to $60 per barrel, supply and demand fundamentals indicate such pessimism may be exaggerated.

Financials were also hit hard, declining 1.47% as big lenders faced concerns over reduced interest income due to the expected Fed rate cut and slower-than-anticipated recovery in investment banking.

Outlook: Focus on Fed Decision

As traders anticipate the Federal Reserve’s decision next week, inflation trends and the central bank’s economic outlook will be closely watched. While the CPI data shows progress, sticky core inflation may limit the Fed’s ability to pursue aggressive cuts.

If inflation continues to ease, equities, particularly in the tech sector, could benefit from an accommodative monetary policy. However, political uncertainty remains a key risk. A cautiously bullish outlook persists for tech, while energy and financials are likely to face continued headwinds in the near term.