Wall Street: US tech stocks tumble amid economic pressures

US equity markets dived last week, led by the tech-heavy Nasdaq, due to persistently high interest rates, ongoing geopolitical tensions, and anxieties ahead of US tech earnings.

Netflix and AI stocks bear the brunt of market disappointment

The sell-off accelerated on Friday night as Netflix's shares dropped 9.09% to $555.04, following its disappointing Q2 revenue forecasts and announcement that it would cease reporting quarterly subscriber numbers—a significant metric for investors. Elsewhere, profit-taking in AI stocks resulted in Super Micro Computers' share price tumbling 23.14% to $713.65, while NVIDIA'S shares fell 10% to $762.

Q1 2024 earnings season

This week, we're bracing for another eventful period in the corporate sector as the Q1 2024 earnings season picks up steam. Companies poised to unveil their earnings include Lockheed Martin, Visa, Tesla, Boeing, Meta, Caterpillar, Alphabet, Intel, Microsoft, Exxon Mobil, and Chevron.

GDP and PCE inflation data awaits

The spotlight on the macro calendar this week is on the Q1 2024 GDP (Thursday) and the Fed's preferred inflation gauge, Core PCE (Friday). After initially forecasting 170 basis points (bp) of rate cuts at the beginning of the year, the market has adjusted to just 44 bp of rate cuts for 2024, with the timeline for the anticipated first Fed rate cut being pushed back to November. Both headline and core PCE price inflation have been on a downward trend since September 2022. However, in February, headline PCE inflation edged up to 2.5% from 2.4%, while Core PCE inflation remained steady at 2.8%.

Market adjusts rate cut expectations amid inflation trends

This month, headline PCE is expected to rise by 0.3% month-on-month (MoM), which would elevate the headline PCE rate to 2.6%. Similarly, the Fed's preferred measure of inflation, the Core PCE price index, is projected to increase by 0.3% MoM, bringing the annual core PCE inflation rate to 2.8%. Despite the early forecast of 170 bp of rate cuts for this year, only 44 bp of rate cuts are now factored into the 2024 expectations, with the initial rate cut being fully anticipated for November.

What is expected from US Core PCE inflation

Date: Friday, 26 April at 10.30pm AEST

Both headline and core PCE price inflation have trended lower since September 2022. However, In February, headline PCE inflation increased to 2.5% from 2.4%, while Core PCE inflation remained stable at 2.8%.

This month, headline PCE is expected to increase by 0.3% MoM, which would see the headline PCE rate increase by 2.6%. The Feds preferred measure of inflation, the Core PCE price index, is also expected to rise by 0.3% MoM, leaving the annual core PCE inflation rate at 2.8%. After pricing 170 bp of rate cuts at the start of the year, there are now just 44 bp of rate cuts priced for 2024, with a first-rate fully priced for November.

PCE annual headline inflation chart

S&P 500 technical analysis

In recent articles, we highlighted the importance of support at 5055/5040 in the S&P 500 cash and noted that a break of this level would "warn that a short-term high is likely in place at 5264 and that a deeper pullback towards 4800 is underway."

After last week's sell-off, we expect sellers to emerge on bounces in anticipation of further weakness in the S&P 500 cash towards 4800. The S&P 500 cash needs to reclaim resistance at 5,050/5,080 on a sustained basis to negate the technical damage from last week's sell-off.

S&P 500 daily chart

Nasdaq technical analysis

In the lead-up to last week's sell-off, we highlighted the flattening out of the uptrend over the past seven weeks and the significance of support at 17,750/17,700. We noted that if the Nasdaq were to see a sustained break of this level, it would likely see a deeper decline towards 17,000.

"If the Nasdaq were to see a sustained break of support at 17,750/17,700, it would warn that a short-term high is likely in place at 18,464 and that a deeper pullback towards 17,000 is underway," we said.

After reaching the 17,000 level on Friday, and with no sign of a short-term bottom in place, we expect sellers to emerge on bounces in anticipation of further weakness in the Nasdaq towards the 16,500/16,300 area, with scope to 16,000. To negate the technical damage from last week's significant sell-off, the Nasdaq would need to reclaim resistance at 17,750/17,800.

Nasdaq daily chart

• ^{Source TradingView. The figures stated are as of 22 April 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}