Nasdaq 100, Dow Jones, S&P 500 News: Tech Giants Drive Market, Risks Loom

AI-Driven Rally: A Closer Look at Technology Stocks and the Nasdaq-100 Index

The recent surge in artificial intelligence (AI) has significantly propelled technology stocks to new heights, resulting in record highs across global stock markets. This analysis focuses on the sustainability of this trend and provides a forecast for the future of technology stocks and the Nasdaq-100 Index.

Current Market Trends

The AI-driven rally has significantly impacted markets worldwide, with U.S. stocks reaching new highs, the Nikkei at its strongest in 34 years, and European shares also rising. George Lagarias, chief economist at Mazars Wealth Management, attributes this surge to high demand for microchips amid limited supply. Mathieu Savary of BCA Research observes a shift from defensive stocks to tech stocks, driven by expectations of low inflation and modest growth. This trend mirrors the tech boom of the late 1990s.

Nasdaq-100 Index and Tech Sector Outlook

The Nasdaq-100 Index, historically sensitive to tech valuations and Federal Reserve policies, shows potential for further gains, particularly if interest rates are cut. However, analysts like Savary warn of a possible correction in the future. The Magnificent 7 U.S. tech giants — Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla — have shown exceptional growth, rivaling the financial might of major G20 countries.

Risks and Diversification

Deutsche Bank’s research notes a high concentration in these tech behemoths, which echoes the market’s concentration levels in 2000 and 1929. Jim Reid from Deutsche Bank highlights the volatility within this group, noting the enduring presence of companies like Microsoft and Apple at the top.

Market Expansion Beyond Mega-Caps

Despite the impressive returns of the Magnificent 7 in 2023, Daniel Casali of Evelyn Partners suggests that the broader U.S. market could see more diversified growth. Factors like U.S. economic resilience, improving margins, and global economic influences might encourage a broader rally beyond these tech giants.

Short-Term Forecast

While the AI-driven rally has significantly boosted tech stocks, especially the Magnificent 7, the market faces potential risks due to its high concentration. The prospect of interest rate cuts could fuel further gains, but there’s a looming possibility of a correction. Diversification and broader market participation could mitigate risks and offer new opportunities for investors beyond the dominant tech giants.

Technical Analysis

E-mini Nasdaq-100 Index futures are edging higher in Monday’s U.S. holiday shortened trade. Despite the slight gain, the market is struggling at current price levels after forming a bearish closing price reversal top at 18121.50 on February 12.

From a bullish perspective, all this market needs is a series of higher bottoms and higher tops to extend the spectacular rally. This makes 18121.50 the key to ingniting the next leg up.

On the downside, a trade through 17542.00 will change the minor trend to down. If this creates enough downside momentum then look for the selling to possibly extend into the uptrending 50-day moving average at 17190.30.

The key to sustaining this rally is how traders react to a test of the 50-day MA. There are concerns at this time that the index is “running to hot”. In other words, the current price at 17780.75 is too far above 17190.30. But we’re not afraid of a pullback into this moving average since it would likely bring in a fresh round of capital that has been sitting on the sidelines.