Investment Idea

Interest-sensitive Nasdaq lags behind

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10/01/2023 | 2 min read

Good employment data combined with lower wage growth on Friday, 6 January, has given stock markets a boost at the start of 2023. European stock markets have risen more than US indices. From current levels, Nasdaq offers the most potential, given a lower return requirement from investors.

The S&P500 index fell by 1.2 per cent on Thursday, January 5, but rebounded by 2.3 per cent on Friday, January 6. US bond yields fell by 16-20 basis points on the 10-year, and 2-year yields, respectively, after the growth rate for wages turned out to be lower than expected (4.6% annual rate against an expected increase of 5.0%). In December 2022, 223.000 additional jobs were created in the United States (predominately in the private sector), versus an expected increase of 200.000 new jobs.

Most of the investor market (73%) now believes that the Fed will only raise policy rates by 25 basis points in their following rate announcement on February 1st, 2023. More encouragingly, the US bond market started strong in January 2023, with as many issues in the first week of 2023 as in the last five weeks of 2022. Increased appetite for bonds among investors can be seen in the US high-yield corporate bond ETF HYG ETF, which has recovered from around 71 on 13 October to 75.85 at the time of writing. Following this rebound, the HYG ETF has hit the MA200.

US HYG ETF in a daily one-year-chart (In USD)

Source: Infront. Performance (left) indexed as of 5 January 2018. Note: Past performance is not a reliable indicator of future results.

Interestingly, European stock indices such as the CAC, DAX and OMX have outperformed in January 2023 compared to US stock indices. This comparison includes the Nasdaq, where past high earnings multiples followed by a significant decline in 2022 illustrate this index's degree of interest rate sensitivity. One possible explanation is that the inflation rate in Europe is currently higher than in the US, despite lower economic growth. 

Significant stock indices performance 1-9 January 2003, in one month and one year


For those who see the current trend towards lower inflation expectations and, thus, interest rates as lasting, Nasdaq could be an instrument for exposure. This is because Nasdaq has had a lousy performance over the past year. Given lower investor return expectations, Nasdaq could rise more than European and other US indices, such as the Dow Jones and   S&P500.

Nasdaq Index, a daily one-year chart (In USD)

Source: Infront and Carlsquare. Performance (left) indexed as of 7 January 2022. Note: Past performance is not a reliable indicator of future results.

Technically, the Nasdaq looks to have found a bottom formation from 10 750 to 10 950.

Nasdaq index, a weekly five-year chart (In USD)

Source: Infront and Carlsquare. Performance (left) indexed as of 7 January 2022. 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


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