Chart Of The Day: Increasing Inflation, Technicals Sending Nasdaq To 10,500

 | Oct 03, 2022 07:28

Nasdaq 100 futures underperformed futures on the Dow, S&P and Russell 2000 and were the only index to trade in the red.

Sharply rising Treasury yields have been a critical driver of this year's equity selloff. Rising borrowing costs make it more expensive for investors to prop up stock prices, limit corporate investment opportunities and increase costs, thus denting profits.

Given that the technology sector is a growth sector, it also suffers the most in a rising interest rate environment as investors move to sectors with lower valuations.

This rotation turned the Nasdaq 100 into this year's worst performer, sliding 32.7% and losing almost a third of its value. To put its slide into perspective, the small cap Russell 2000 suffered a smaller 25.4% loss as smaller companies also struggle when interest rates rise as they do not have the credit history of their larger cap competitors.

So far this year, the S&P 500 is down 24.77%, and the Dow Jones has outperformed with just a 21% decline.

Although US yields have eased this morning, providing some respite to US futures, there are a few other things that may further hike US inflation.

OPEC is considering its biggest production cut since the pandemic, causing oil to open 2.8% higher and extend an advance to 4.6%. However, I don't expect it to keep moving higher.

The energy crisis in Europe escalated with Russia's Gazprom (MCX:GAZP) halting gas supplies to Italy amid a dispute with its Austrian operator. Additionally, Eurozone inflation soared to a record 10% in September, a jump from 9.1% in August and higher than the estimated 9.7% which will pressure the ECB to raise rates further.

In a global economy, inflation is contagious, and the NDX may be sensitive to these pressures. Let's look at the chart.