The Nasdaq has traded in a volatile range since May as traders weigh Fed tightening risk against the US-Iran conflict. A hawkish speech from Fed Chair Warsh pushed September rate-hike odds to 60%, leaving next week's US CPI report as the decisive catalyst for the index's next move.
The Nasdaq is trading at the same levels it held in May, stuck in a rangebound stretch with high volatility for four months. Fed tightening risk and the US-Iran war are the two forces behind the underperformance, both weighing on future growth expectations.
Rate-hike odds jump to 60%
Fed Chair Warsh's hawkish speech retightened financial conditions and repriced interest-rate expectations. September rate-hike probabilities jumped from 33% to 60% as a result. Warsh has said the Fed is focused solely on inflation now and that progress has been slow, meaning only a soft US CPI print could pull the odds back below 50% and deter a hike at the September meeting. If the probabilities hold at or above 50%, the Fed may hike anyway, since backing off would send a dovish signal and ease financial conditions again.
That would not necessarily mean lasting damage for stocks. The Fed now seems likely to raise rates at its mid-September meeting, but following past first hikes after a rate-cut cycle, stock-market weakness has historically begun about a month before the hike and lasted about a month after.
Support holds near 28,950
On the daily chart, the Nasdaq found support around the 28,950 level. A pullback there could draw buyers positioning for a rally toward record highs, while a break lower would open the door to July's low near the 27,200 level. On the four-hour chart, the index has held a range between 28,950 support and 29,800 resistance.
Bond markets add another variable. Strategists at Panmure Liberum, led by Joachim Klement, see cyclical forces potentially overwhelming fears about debt sustainability, a scenario that could pull the recent surge in government bond yields back down even as they flag the longer-term danger of mounting deficits.
For now, the best-case scenario is a soft CPI print paired with de-escalation in the Middle East, while a hot CPI without de-escalation could send the Nasdaq back toward July's lows.
Sources: Investinglive, MarketWatch (snippet-based), MarketWatch (snippet-based)
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