Overview
Recent disappointing earnings from major technology companies, particularly Alphabet, have raised concerns about the sustainability of investments in artificial intelligence (AI). Following these results, Nasdaq 100 futures experienced a decline of approximately 1%, reversing gains made after the Federal Open Market Committee (FOMC) meeting. The current forecast for the Nasdaq 100 remains cautious, as the index hovers near record highs and continues to attract dip buyers.
Alphabet's Impact
Alphabet's shares fell nearly 10% in premarket trading after the company reported earnings and revenue that fell short of expectations. The results indicated that AI search products might be negatively impacting its core advertising business, reigniting debates about the viability of the massive investments being made in AI technologies.
In contrast, Microsoft reported strong earnings, showcasing significant growth in its Azure cloud services and robust demand for AI, which helped its shares rise by about 3.5% premarket, providing some balance to the overall tech sector's performance.
Technology Sector Performance
The technology sector is currently underperforming, with Alphabet's decline affecting other companies in the AI and semiconductor industries. For instance, Samsung Electronics saw a 4% drop in its shares despite reporting a substantial increase in chip profits due to AI-related demand. Investors expressed concerns over the lack of new shareholder-return measures and the company's plans to significantly increase capital expenditures, raising questions about the sustainability of such investments.
Economic Indicators
Recent economic data showed that the U.S. GDP grew at an annualized rate of 3.4% in the third quarter, surpassing expectations of 3.2%. Additionally, the core Personal Consumption Expenditures (PCE) index rose by 0.3% month-on-month, indicating persistent inflation. This combination of strong growth and inflationary pressures complicates the Federal Reserve's monetary policy outlook, making a rate hike in December more likely.
Technical Analysis of Nasdaq 100
From a technical standpoint, the Nasdaq 100 has shown signs of weakness, having fallen below the 21-day exponential moving average and a previously bullish trend line. The index's recent significant low is at 28,745, which is viewed as a critical support level. A break below this level could indicate a deeper correction. Immediate support levels are identified at 29,500 and 29,000, while resistance is seen at the psychological level of 30,000 and the broken trend line around 30,300.
Currently, the market appears to be in a consolidation phase, and traders are advised to remain cautious until a clearer trend emerges.