Tech Rally Pauses Ahead of Powell

Tech stocks have been enjoying a solid rebound this year. After being decimated in 2022 amidst a surging USD and soaring Fed rate hike expectations and aggressive tightening operations, tech stocks have been among the best performers over early 2023. However, Friday’s US jobs data appeared to stop the rally in its tracks. The NFP came in around 2.5x market forecasts while the unemployment rate hit 50-year lows. Traders are now carefully considering whether this means the Fed will stay hawkish for longer on rates, given that the economy is obviously handling current tightening better than expected. With this in mind, the focus now turns to Fed’s Powell who speaks at the Economic Club of New York today.
 

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Hawkish Risks

On the back of Friday’s data, the big risk now is that Powell takes a more hawkish stance. While the FOMC saw the Fed reaffirm its commitment to continuing with rate hikes, Powell’s comments on inflation saw the market beginning to bring forward end-tightening expectations with a rate cut starting to be priced in toward year-end. However, with the economy clearly holding up well, the Fed might now decide that it has room to continue pushing with rate hikes to bring inflation down even quicker, which near term might see the USD rally continue, pulling tech stocks lower again. However, if there is no material hawkish shift from the Fed today, traders might see this as a green light and once again start bidding tech stocks up.
 

Technical Views

Nasdaq

(Click on image to enlarge)

The rally in the Nasdaq saw the index trading up to a test of the 12875.84 level. The bull move has stalled here for now with the price reversing lower in line with weakening momentum studies. However, while the index holds above the 12220.22 level, the focus is on an eventual breakout above current highs. Below 12220.22, the focus shifts to 11540.72 next.

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