The Nasdaq 100 has recently come under considerable pressure, with a notable decline over the past three weeks that has nearly erased the gains achieved following the last U.S. presidential election. This downturn highlights broader market concerns, including rising interest rates that diminish the attractiveness of equities as investment vehicles. As investors analyze this scenario, they must consider key technical levels, market breadth, and macroeconomic indicators that paint a troubling picture for this tech-heavy index.
In December 2024, the Nasdaq 100 reached a new all-time high, only to falter soon after. The index has since slipped about 6%, dropping to a vital support level of 20,790, which has become crucial in determining the market’s directional bias. Following the lows reached on January 13, 2025, when the Nasdaq printed an intraday low of 20,538, a slight rebound to 20,784 failed to inspire confidence. The importance of the 20,790 level cannot be overstated, as a decisive breach here could signal a larger market correction, disrupting the uptrend that has prevailed since October 2022.
These fluctuations also reflect a market struggling to regain momentum, particularly in light of the volatility introduced by changes in fiscal policy and economic indicators. The interplay between the U.S. Treasury yields and stocks creates a challenging environment, particularly for high-growth companies that make up a significant portion of the Nasdaq 100.
The persistent rise in the 10-year U.S. Treasury yield has left many equities looking overvalued. This situation is measured by the Shiller excess CAPE yield, which has steadily decreased from 1.94 in September 2024 to just 1.10 by January. This decline indicates that equities, particularly those in the S&P 500, are becoming less enticing compared to the yields available from safer treasury bonds. As bond yields rise, the escalation in borrowing costs casts a long shadow over potential corporate profitability, nurturing uncertainty within the equity market even as proponents of the new administration expect deregulation and corporate tax cuts to fuel growth.
This teetering equilibrium between bonds and stocks underscores a critical dilemma for investors. As opportunity costs of holding risk assets increase, capital may find safer harbors in fixed-income instruments, exacerbating downward pressure on equities.
A closer examination of market breadth presents an unsettling picture for the Nasdaq 100. As of January 13, 2025, only 53% of Nasdaq component stocks were trading above their respective 200-day moving averages, a substantial decrease from the 70% peak registered shortly after the presidential election. This decline in market breadth is disconcerting, as it suggests that the index’s recent gains were not broadly supported by its constituents.
Weak market breadth can often foreshadow longer-term bearish trends, particularly if the broader market fails to follow through on upward price action. With the tech-heavy Nasdaq 100 having exhibited signs of internal weakness, investor sentiment may continue to sour unless a robust recovery emerges.
Further compounding this challenge, momentum indicators also paint a bearish case for the Nasdaq 100. The daily RSI (Relative Strength Index) has been forming a series of lower highs and lower lows, indicating sustained selling pressure. Until the index can reclaim a level above the pivotal resistance zone of 22,470/980, the bearish trend may hold strong, potentially setting the stage for further declines.
The implications of these technical patterns suggest that the market may struggle to regain the bullish momentum required for a sustained recovery. The lack of strong internal strength and the downward trajectory of momentum indicators should encourage investors to approach the market with caution.
The Nasdaq 100 finds itself at a critical juncture characterized by rising treasury yields, declining market breadth, and bearish momentum indicators. The recent decline underscores significant vulnerabilities within the tech sector, compelling investors to reassess the sustainability of the index’s upward trajectory. As market conditions evolve, careful attention to key technical levels and broader economic indicators will be essential. Investors must remain vigilant, prepared to navigate the turbulent waters that lie ahead in this challenging investment landscape.