The Nasdaq 100 index collapsed by more than 400 points on Monday as investors continued worrying about the rising risks in the market. The losses eased slightly in the futures market, where it rose by about 50 points. It is trading at $15,000, which is about 5% below its all-time high.
Global risks rise
The Nasdaq 100, Dow Jones, and S&P 500 indices retreated sharply on Monday as risks in the market rose. This decline made it the worst drop since May this year.
First, there is the default risk of Evergrande, the second-biggest real estate developer in China. The company defaulted on a debt that came due on Monday and is set to default on another one due on Thursday.
Therefore, investors are pricing in a Lehman-like collapse of a systemic important company in China, the second-biggest economy in the world. They worry that its collapse will have impacts around the world. Besides, some American investing groups like Blackrock, Pimco, and Ashmore Group have exposure to the company’s bonds.
At the same time, there are risks that many overleveraged Chinese developers will also come under pressure as Beijing tightens leverage rules. Still, some analysts believe that the overall impact of the company’s collapse will be relatively muted. That is because most banks with the company’s exposure are based in the mainland and most of them are owned by the state.
Federal Reserve and US funding risks
The Nasdaq 100 index also retreated because of the potential Federal Reserve risks. The Fed will start its September meeting on Tuesday and deliver its decision on Wednesday. Economists expect that the bank will leave its policy tools like interest rates and quantitative easing unchanged.
Nonetheless, going by previous statements by Jerome Powell and other officials, there is a likelihood that the bank will provide signals about when it will start tapering its asset purchases. It will also provide more details about when it will start hiking interest rates and the number of hikes it will do. In most cases, a hawkish Federal Reserve is usually bearish for the Nasdaq 100.
The decision comes at a time when the debt ceiling deliberations are going on in Congress. With time running out, there are fears that the Senate will not have the votes needed to increase or suspend its debt ceiling. Still, there is a high probability that the Senate will reach a deal to prevent the country from defaulting.
The Nasdaq 100 index will also react to the upcoming earnings from several key companies. Adobe, the giant technology company, is expected to publish relatively strong results as demand for its cloud services rose.
Companies like FedEx, AutoZone and Costco will also publish results. While the results will likely be positive, these firms will be hit by the higher shipping and labour costs. Indeed. In a statement on Monday, FedEx said that it will hike shipping costs in January this year.
Another thing moving the Nasdaq 100 index is the rising energy costs as natural gas prices soared. This performance happened as China’s Gazprom started blocking some supplies to Europe.
Nasdaq 100 technical analysis
The daily chart shows that the Nasdaq 100 index has been in a bullish trend this year. This jump saw the price rise to an all-time high of $15,750. For most of the part, the index has held steady above the 50-day and 100-day moving averages.
On Monday, the index fell below the 50-day EMA but it remains above the 100-day MA. Therefore, while conditions have worsened, the index will remain in a bullish trend so long as it is above the 100-day EMA.