The Nasdaq 100 index is hovering near its all-time high as investors reflect on the recent earnings season, hawkish Federal Reserve decision, and the infrastructure deal. The index is trading at $16,360, which is a few points below its all-time high.
Earnings support the Nasdaq
American companies did relatively well in the third quarter. According to FactSet, 89% of all companies in the S&P 500 index have already published their quarterly results. Of these companies, 81% have reported better-than-expected earnings-per-share (EPS), while 75% reported better revenues.
Another important metric was on the companies growth. The blended growth of all companies reported was about 39%. This was the best growth rate since 2010. In contrast, the American economy expanded by just 2% in the third quarter.
Some of the notable companies that had a strong quarter were Tesla, Google, Microsoft, Netflix, and Facebook. Tesla crossed the $1 trillion market cap after it reported strong revenue and profitability growth. The company also managed to do well even as the chip challenges remained.
Still, some Nasdaq 100 constituent companies did not do well. For example, the Snap stock price has crashed by more than 30% after the company reported weak results. It blamed the recent iOS 14 update that gave customers cookies options.
Amazon also did not do well in the third quarter. The company blamed the relatively higher cost of doing business and warned that costs would be relatively higher in the coming months.
Last week, Peloton stock crashed by about 30% after the company warned that its business was slowing. This is happening as more people go back to work and opt for physical gyms. The firm has now frozen hiring.
Another key Nasdaq 100 stock that disappointed was Zillow. The company was forced to slash two-thirds of its workforce after challenges in its iBuying business emerged. The company holds thousands of homes in its balance sheet that it is yet to sell.
Worse, most of these homes are listed at a price that is lower than what the company paid for them. Also, there are concerns about its Zestimate product that guides customers on prices. The stock is down by 68% from its highest level this year.
Infrastructure and Federal Reserve
Surprisingly, the Nasdaq 100 index has done well even after the Federal Reserve interest rate decision. On Wednesday, the bank turned hawkish by starting to taper its asset purchases. It will slash its purchases by about $15 billion per month and end the program next year. Higher interest rates will then follow.
In theory, a hawkish Fed decision is usually bad for the Nasdaq 100 index since it is made up of growth stocks. In my view, the Nasdaq index has held steady because the hawkish tone of the Fed was already priced in by the market. As such, it was not a surprise. Also, investors believe that earnings growth will continue to support these companies. The index is also rising because of the infrastructure deal that was passed in the House of Representatives.
Nasdaq 100 technical analysis
The four-hour chart shows that the Nasdaq 100 index has been in a strong bullish trend in the past few months. The bullish trend accelerated when the index moved above the key resistance level at $15,715, which was the highest level in September.
It also moved above the short and longer-term moving averages, while the Relative Strength Index (RSI) shows that it is extremely overbought. Therefore, while the bullish trend is still intact, we can’t rule out a pullback in the near term.