Record Gains for Tech Stocks

The Nasdaq recorded its strongest H1 in 40 years this year with a 32% gain. The US tech index has bene bolstered over the year so far by shifting Fed expectations and resilient US economic data which has pushed back against those warning of an incoming recession. Growing expectations earlier in the year of a forthcoming Fed pivot helped drive bullish sentiment in stock markets, with the tech sector among the biggest beneficiaries. Additionally, bumper returns from leading names have helped underpin the rally across the year.

Key Test for the Nasdaq

However, the index is at an important juncture now. With the Fed pivot having played out a little different than markets anticipated, a fresh wave of Fed hawkishness might cause some pullback in the index near-term. Additionally, recession fears are starting to gran the limelight once again. Despite US data remaining resilient, the concern is that a further round of tightening in coming months might tumble the economy.

China Data Weakening

Traders are also grappling with fears over the health of the Chinese economy. Key indicators have been trending lower in recent months, suggesting the post-pandemic recovery is waning there. Overnight, the latest Caixin Services PMI reading was seen undershooting forecasts at 53.9, down from 57.1 prior and below the 56.2 forecasted. If Chinese data continues to weaken in coming months this will no doubt add to bearish sentiment, creating a headwind for stocks near-term.

Technical Views

Nasdaq

The rally in the Nasdaq has stalled once again into a test of the 15177.5 level and bull channel top. While this area holds, the index risks forming a double top, suggesting room for a correction lower. If we do pull back here, 14288.2 will be the next key support to note, ahead of deeper support at 13572.6 and the bull channel lows.