NASDAQ Dips Ahead of Monday's Reshuffle; Analysts Remain Optimistic

Earnings reports on Thursday read better than analysts’ expectations, but most global shares decline. What is triggering the negative order flow book? The NASDAQ was the worst-performing index, having experienced its worst performance since June 7th. However, economists still advise that the stock market's outlook remains positive. According to economists, due to global indices rising significantly over the past 8-months, specifically in the US and Europe, investors are punishing any sign of negative news. However, the positive news does not have the same effect. 

The reason for this is the high pricing resulting in negative news pushing medium and longer-term investors to cash in profits by selling shares. At the same time, positive news is lacking buyers due to the current high price. However, economists advise that the decline has not formed more than a retracement so far, and plenty of positive elements remain that can reignite an upward trend. If inflation continues to decline, the Dollar remains weaker, and employment continues its resilience, the US stock market can hold onto its bullish trend throughout the rest of 2023. 

The US Dollar this morning is trading slightly lower but is holding onto gains made over the past three days. The US Dollar Index is trading at 100.76 and is 0.12% lower than the day’s open price. The best-performing currency on Thursday was the US Dollar which rose against all currencies. The US Dollar also rose against the Swiss Franc, which has been the best-performing currency of July so far. The Swiss Franc declines against all currencies on Thursday. 

USD/CHF 30-Minute Chart on July 21st

NASDAQ Dips Ahead of Monday’s Reshuffle

The NASDAQ declined by 1.73% on Thursday if we included the Futures trading session and by 2.28% if we only included US trading hours. The SNP500 also declined, but the Dow Jones rose by 0.47%. The Dow Jones did not experience a decline as the index does not include Tesla and Netflix, which saw significant declines. Only 33% of the NASDAQ’s components held onto their value and witnessed bullish price movement. 67% of the index ended the day lower, with Tesla, Netflix and Zscaler all declining by more than 8%. 

The main reason for the decline is the weaker earnings data from Tesla and Netflix and higher demand for the bond market, which is known to damage demand for technology stocks particularly. Traders will monitor if the two stocks continue declining for a second consecutive day and focus on today’s earnings data. The main report affecting the NASDAQ is American Express which is due to release its quarterly figures before the market opens. Analysts expect American Express to release earnings and revenue higher than the previous quarter. Higher-than-expected data can support the individual stock as well as the NASDAQ. However, traders should note that the stock only holds a “weight” of 0.28%.

Another reason for the decline is NASDAQ’s scheduled “reshuffle” for Monday. The NASDAQ will reduce the weight of the index’s most influential stocks, such as Microsoft, Apple, and NVIDIA. The issue is that the top seven influential stocks have been responsible for most of the price increases in 2023. However, the reshuffle will also mitigate and spread risk, which can be deemed positive.

The US Weekly Unemployment Claims read lower than expected, indicating a solid employment sector. However, the total number of people receiving assistance from the federal government rose from 1.721 million to 1.754 million. Nonetheless, the employment data indicates “cooling” but resilient considering the restrictive monetary policy. Other areas of the economy also show signs of stagnation; the building permits data read lower, as did the existing home sales and the Philly Fed Manufacturing Index. However, this data can also be positive for the NASDAQ as it is irrelevant to the technology sector and can prompt the Fed to take a weaker stance. 

Regarding technical analysis, the price of the NASDAQ is increasing during this morning’s futures market. The bullish price movement this morning measures 0.37% but is still forming nothing more than a retracement. For bullish price indications, the price must break above $15,602.80. If the price declines below $15,430.5, the asset will form a downward trend pattern. However, the main price driver will be today’s earnings data from American Express, the performance of Tesla and Netflix, and earnings data from Microsoft and Alphabet next Tuesday. Microsoft is the most influential stock within the NASDAQ, and Alphabet is the 4th. Higher than-expected data can support the NASDAQ and potentially a further bullish price. 

NASDAQ 1-Hour Chart on July 21st

Summary:

• The NASDAQ was the worst-performing index, having experienced its worst performance since June 7th.
• The reason for the decline is NASDAQ’s scheduled “reshuffle” for Monday. The NASDAQ will reduce the weight of the index’s most influential stocks, such as Microsoft, Apple, and NVIDIA. 
• The main price driver will be today’s earnings data from American Express, the performance of Tesla and Netflix, and earnings data from Microsoft and Alphabet next Tuesday. Microsoft is the most influential stock within the NASDAQ, and Alphabet is the 4th.
• The US Dollar Index is trading at 100.76 and is 0.12% lower than the day’s open price. The best-performing currency on Thursday was the US Dollar which rose against all currencies.