Column

Nasdaq may rebound on short-term lower interest rates

Carlsquare Vontobel.jpg
Carlsquare
04/10/20223 min read
GettyImages-913271736.jpg

Monday’s downward rebound in US Treasury rates could trigger the Nasdaq index, linked to its higher valuation based on more anticipated future profits. Nasdaq is technically also traded around a support level.

Rising bond yields continue to put pressure on world stock markets. Meanwhile, it is interesting to note that both the Bank of England and China's central bank have started to stimulate their economies with, among other things, government bond buybacks. The decisive moment in the market will be when the Fed changes foot, but we are not there yet. Rising bond yields and falling risk appetite for low-rated bonds are also raising concerns about major credit defaults, with Credit Suisse being the latest.

The world's major stock market indices have declined by between five and eight per cent in the past month, with the Japanese Nikkei being the only positive exception.

Significant stock indices performance in one week, one month and this year

2022-10-04_CS1.png

Source: www.di.se, www.cnbc.com

However, despite the described long-term sentiment, we may have entered into a short-time rebound phase for the US and European stock markets. The USD/SEK has weakened slightly, and, above all, the US 2-year and 10-year Treasury yields recoiled by 9 and 14 bps on Monday, 3 October. The stock market is starting to price in a recession. In our view, the 2-year US Treasury rate is a better leading indicator of inflation expectations compared to the 10-year rate. Today’s exceptionally high inflation rate is expected to decline sooner or later. We have seen a few signs of lower raw material and transportation costs lately. After all, how should consumers afford all these increasing prices? They must adopt and decrease their spending and consumption accordingly.

US 2 Year Treasury yield (in %), a daily one-year price chart

2022-10-04_cs2.png

Source: Infront. Note: Past performance is not a reliable indicator of future results.

The USD has also fallen back slightly, about 3% against the SEK, in the past week. A rising USD usually means a falling stock market and vice versa.

So how should you position yourself if you believe in a short-term interest rate cooling? Sector-wise, it's about property companies rather than banks. But we think the Nasdaq index also looks heavily oversold. This is where higher Price/Earnings (P/E)- multiples come into play, as a more significant proportion of technology companies' profits are expected to materialise further down the line. Lower interest rates= lower return requirements and higher p/e ratios, all else equal. This means that the Nasdaq should do better than the Dow Jones in particular, but also to some extent than the S&P500 index (considering that the latter contains some 25% of FANG stocks).

Nasdaq Index (in USD), a daily one-year share price chart

2022-10-04_cs3.png

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Technically, the Nasdaq has rebounded to 10,740 at the time of writing, some 0.9% higher than the low of 10,646 reached on 16 June. Today's level is thus close to support (albeit it looks very fragile). The closest the Nasdaq was to today’s price levels was in October-November 2020, after a quick rebound from the Covid pandemic bottom in March 2020.

Nasdaq Index (in USD), a weekly five-year share price chart

2022-10-04_cs4.png

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

Risks

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.