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Nasdaq Plunges Amid Rising Yields

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This week’s major highlight was the Federal Reserve Chair Jerome Powell speech at the Economic Club of New York on Thursday where he reiterated the central bank’s preference for keeping interest rates steady at the next meeting given the recent spike in long-term U.S. Treasury yields and progress regarding inflation.

Jerome Powell also left open the possibility of future rate hikes if the economy continues to show resilience. In response to his speech, short-term Treasury yields declined while long-term yields rose, leading to a steeper yield curve.

On the economic front, data this week presented a mixed picture. Applications for U.S. unemployment benefits declined to the lowest level since January, showing the labour market is still tight. Home sales have fallen to their lowest level since 2010, while retail sale, industrial production, and housing construction were ahead of forecasts.

While some of these developments were positive for stocks, reports of renewed tensions in the Middle East, exerted downward pressure on the tech index. Another central concern this week has been the surge in long-term U.S. Treasury yields, which hit their highest level in 16 years.

The additional risk around the Middle East conflict and news that the Biden administration plans to begin refilling its strategic oil reserves, pushed energy prices higher, with WTI crude oil prices trading above $89.00 on Friday, raising fresh concerns that inflation could persist for longer. Should inflation remain elevated, it might require further tightening of monetary policy.

The latest earnings results in the tech sector were mixed with Tesla shares plunging after the EV maker missed margin forecasts, while digital streaming giant Netflix surged after beating analysts’ estimates for new customers.

A screenshot of a graph

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Source: TradingView

The tech index has been trading lower this week amid rising geopolitical tensions, as well as rising bets that the Federal Reserve will hold rates higher for longer than initially anticipated. A large descending triangle has formed on the daily chart showing that selling pressure is building up. Generally, the pattern has bearish implications and points to lower levels in the coming months.

Additionally, momentum conditions have deteriorated over the past two months, with the Relative Strength Index (RSI) indicator fluctuating below 60%, which is a resistance level during bear markets.

While at this juncture in time there is no price reversal on the chart, given the bearish implications from the descending triangle pattern and the deterioration in momentum conditions, key support of 14,432 is likely to be challenged. A subsequent break below that level appears likely, which in turn could trigger further weakness in the range between 13,300 and 13,600.

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Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

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Julian Manoilov

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Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

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Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

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Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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