The Nasdaq 100 index tumbled to the lowest level since July 2021 on Monday as concerns about the Federal Reserve and Ukraine rose. The index dropped by over 500 points and reached a low of $13,765.

Federal Reserve concerns

The Nasdaq 100 index is one of the biggest indices in the world. It is well-known for the fact that it tracks the main technology companies in the US. Among the most significant members of the index are companies like Apple, Microsoft, Tesla, and Google.

Historically, technology stocks are known for their fast growth and low dividends. As such, these stocks tend to do well in a period of easy-money policies. 

Therefore, the index has underperformed the Dow Jones and S&P 500 indices this year. It has crashed by about 12% while the other two have fallen by 7.7% and 5.70%, respectively. The underperformance happened as investors rotated from growth to value stocks.

This performance has happened as investors look forward to the actions of the Federal Reserve. The bank started tightening in November, and now analysts expect that it will accelerate the process this year. It will do that by lowering its asset purchases and implementing about four rate hikes.

The Federal Open Market Committee (FOMC) will start its meeting on Tuesday and then deliver the decision on Wednesday. For this week’s meeting, analysts expect the bank to lower the QE for the third straight month and then start hinting towards four rate hikes this year.

The Nasdaq 100 index has also declined because some analysts expect that the Fed will not only end its QE program but also start a quantitative tightening (QT) program. QT is a period when the bank starts to reduce its balance sheet.

However, in my opinion, that idea is far-fetched, considering that the American economy is slowing, as evidenced by the weak flash manufacturing and services PMI data.

Ukraine and corporate earnings

The other reason why the Nasdaq 100 index retreated on Monday was in Ukraine. In the past few weeks, tensions between the United States and Russia have continued. The US accuses Russia of attempting to invade Ukraine, accusations that Russia has rejected.

Talks between the US Secretary of the State and Russia’s foreign minister failed to reach a deal during the weekend. As a result, the US and UK have asked their diplomatic staff to move from Ukraine. The Biden administration has also mobilized some troops. 

The next key catalyst for the Nasdaq 100 will be corporate earnings. On Monday, the IBM stock price jumped by over 2% after the company reported strong results. 

Later this week, other pivotal companies in the Nasdaq 100 index like Microsoft and Tesla will publish their results. Analysts expect that Microsoft did well in the fourth quarter as demand for cloud computing rose. 

Similarly, based on the delivery guidance, analysts believe that Tesla will publish strong results for the fourth quarter. Other important companies to watch this week will be firms like Raytheon, Johnson & Johnson, and Verizon.

Nasdaq 100 forecast

The daily chart shows that the Nasdaq 100 index has been in a strong bullish trend lately. The bullish momentum ended recently, and the index managed to move below the ascending channel. Most importantly, it has dropped below the 200-day Moving Average, which is a sign that bears are getting in control.

The daily chart of Nasdaq 100, showing broken ascending channel, MAs, and Fib levels.

Therefore, the index will likely continue the bearish trend as bears target the 50% Fibonacci retracement level at $11,735, about 18% below the current level.