Nasdaq 100 outperforms as yields fall following weaker ADP data

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Jobs data disappoints

Economic data out of the US showed a clear miss in ADP's (Automatic Data Processing) non-farm estimate, with growth of 89K instead of forecasts for a figure closer to 150-160K. This reversed sentiment regarding the job market following Tuesday’s beat in job openings reported by JOLTS.

Other data included the services PMI (Purchasing Managers’ Index), which slightly beat expectations for ISM (Institute for Supply Management) but worsened from its previous reading of 54.5 to 53.6. S&P Global also slightly missed expectations at 50.1, with just a slight push putting it into contracting territory.

Bond yield attraction

Market participants continue to nervously watch the bond market. Tuesday’s stronger job openings data sent yields higher but dropped yesterday after the weaker ADP print. Overall, they finished the session lower, off recent highs. This also applied in real terms, with breakeven inflation rates pulling back a bit.

Market pricing (CME's FedWatch) has shifted away from the middle but still indicates a significant minority favoring a 25bp (basis point) hike in December by the US Federal Reserve (Fed). This is a change from the almost even odds the day before.

Additionally, there's now a slight majority leaning toward the first rate cut from current levels in June instead of July next year.

Sector performance

Most sectors finished yesterday's session in the green, with the exception of a small loss for utilities and a significant one for energy, mainly due to energy prices retreating. Additionally, consumer discretionary, communication, and technology sectors performed well, resulting in an outperforming finish for the tech-heavy Nasdaq 100, which managed to outperform both the Dow 30 and S&P 500.

While we have Challenger's job cuts data for the month of September and the weekly claims available today, the focus will be on tomorrow's Non-Farm Payrolls report from the Bureau of Labor Statistics. This report will determine whether it confirms ADP's weakness and shifts market expectations regarding future Fed actions towards less aggressive monetary tightening. This could temporarily halt the recent trend of rising yields and provide some relief to risk appetite, as seen in the market performance yesterday.

Nasdaq technical analysis, overview, strategies, and levels

The gains in Wednesday’s session took the price past its previous 1st Resistance level, which initially held, favoring conformist sell-after-significant reversals. However, the second breach caused stop-outs and gave contrarian buy-breakouts the eventual win. Overall, the technical overview on the daily time frame remains 'bear average', but with most of its technical indicators neutral and price-indicator proximity capable of shifting a couple of them with relative ease, it presents an overview that holds less conviction until we see prices persistently average lower.

IG client* and CoT** sentiment for the Nasdaq

In terms of market sentiment, the majority of retail traders are still long. However, recent price gains have led to a decrease in long positions, with 53% of traders holding a long position. If prices continue to rise, this could lead to more long positions being closed out and short positions being initiated, potentially shifting sentiment to majority short.

On the other hand, Commitment of Traders (CoT) speculators have already moved into sell territory, currently at 51%. This represents a shift from the previous report, where they were in a slight long position at 51%.

Nasdaq chart with retail and institutional sentiment

• *The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
• **CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.